The European Securities and Markets Authority (ESMA) urges investment firms to be transparent about the risks and lack of regulation associated with unregulated products, including crypto.
ESMA has raised concerns about investment firms offering unregulated products and services, including crypto. The agency implores firms to be more open with investors about their risks and lack of regulation. Currently, many firms are failing to be forthcoming enough, ESMA believes.
Transparency for Investors
In a statement Thursday, ESMA and national regulators state that they have observed cases where certain offerings fall outside financial regulation but are marketed as investment alternatives. This poses risks to investors who may not realize the lack of regulatory protections.
The regulator emphasizes that retail investors often rely solely on the reputation of investment firms—a so-called “halo effect.”
ESMA stresses in particular the risks associated with crypto assets, alongside real estate, gold, raw materials, and other non-transferable securities. It warns that not all countries in the EU have the same investor protection regimes in place.
The statement also lists risks investors face with respect to unregulated products, such as confusion, inadequate risk awareness, and mis-selling.
The EU Rolls Out Legislation
Investors won’t have to wait long for further clarity, as the 27-nation bloc has recently passed its sweeping Markets in Crypto-Assets Act (MiCA) bill, a regulatory framework for crypto businesses in the EU. It will enter into force in June 2023.
The far-reaching legislation aims to provide clarity, uniformity, and security for digital assets. As well as establishing clear rules for crypto-asset service providers and token issuers.
By the end of 2024, all components of MiCA will be actively governing crypto-business operations within the EU.
The response from the industry has been generally positive, with many making comparisons to the hostile regulatory environment in the United States. Shortly after being voted on in April, Coinbase tweeted approvingly that it would “give crypto organizations the confidence to invest and grow in the region.”
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