Investment firms should make sure clients are aware of the regulatory status of the products they offer, including cryptocurrency, according to the latest notice from the European Union’s financial markets regulator.
The European Securities and Markets Authority, or ESMA, said it was concerned about investment firms that offer unregulated products and services, in an investor protection statement released on Thursday.
“Where investment firms engage in providing both regulated and unregulated products and/or services, there is a significant risk that investors may misunderstand the protections they are afforded when investing in those unregulated products and/or services,” ESMA said.
Crypto is unregulated in the EU until the Markets in Crypto-Assets regulation, MiCA, is applied at the end of 2024.
The European Council adopted MiCA earlier this month, which would require firms that want to issue, trade, and safeguard crypto assets, tokenized assets, and stablecoins in the 27-country bloc to obtain a license.
What’s next?
Investment firms should “clearly disclose” to their clients when regulatory protections do not apply and should take measures to make sure that clients know the regulatory status of certain products, ESMA said.
That regulatory status should be clearly communicated, at every state of the sales process, including through marketing communications, the regulator said.
That information should also not be misleading, ESMA added.
“ESMA is of the view that, by virtue of their regulated status, investment firms offering unregulated products and/or services that may be considered as alternatives to investing in financial instruments should act in the best interests of their clients,” according to the notice.
Last year, ESMA, along with other EU regulators, warned consumers about high risks behind cryptocurrencies.
Crypto is not suited for most retail investors, they said, because they can lose all their money and be exposed to too good to be true returns.
“The ESAs [European Supervisory Authorities] also warn consumers that they should be aware of the lack of recourse or protection available to them, as crypto-assets and related products and services typically fall outside existing protection under current EU financial services rules,” the regulators said.
