ESMA Urges Crypto Companies to Label Assets as Unregulated Before MiCA Launch

• The European Securities and Markets Authority (ESMA) recently urged cryptocurrency companies to label unregulated cryptocurrencies when offered to investors.
• MiFID II is a regulatory structure established by the EU for managing financial markets, while MiCA is an upcoming legislation aiming to provide a framework for crypto businesses.
• ESMA has expressed worries about potential investor protection and financial risks when dealing with unregulated products.

ESMA’s Warning on Unregulated Crypto

The European Securities and Markets Authority (ESMA) has recently cautioned cryptocurrency companies against offering unregulated assets to investors without explicitly labeling them as such. This warning comes at a time when the European Union is preparing to adopt the Markets in Crypto Assets (MiCA) legislation in 2025, which will provide a framework for cryptocurrency businesses.

Regulatory Framework of EU

The Second Markets in Financial Instruments Directive, also known as MiFID II, was launched in 2014 and came into effect in 2018. This directive establishes a regulatory structure for managing financial markets within the European Union. Meanwhile, MiCA aims to provide legal certainty surrounding cryptocurrency activities once it becomes active in 2025.

Concerns Raised by ESMA

In light of these developments, ESMA has raised concerns about potential investor protection and financial risks associated with trading in unregulated products offered by cryptocurrency firms. These include customers receiving misleading information about their protection levels, uncertainty surrounding products, and the misrepresentation of products to customers. Along with the National Competent Authorities (NCAs), ESMA advocates that if a company presents cryptocurrencies to investors, it should clearly indicate that these assets are unregulated.

Importance of Client Interests

To ensure fairness and professionalism while communicating with clients regarding crypto investments, investment firms must prioritize their clients’ interests by providing clear information about the regulatory status of any product or service they offer. Furthermore, they are required to make sure clients are fully aware of what protections are provided when investing in unregulated products or services.

Conclusion

Overall, ESMA’s guidance serves as another step towards clearer regulation of cryptocurrencies once MiCA comes into effect in 2025. Until then however, it will be important for investment firms to communicate transparently with their clients regarding any risks or uncertainties involved with investing in unregulated crypto assets so that investors can make informed decisions when making investments into this emerging asset class