In a recent statement, the European Securities and Markets Authority (ESMA) issued a warning to cryptocurrency firms regarding the potential for misleading customers about the regulatory status of their products as the European Union’s efforts to mitigate risks associated with digital assets.
ESMA Warns Crypto Firms Against Misleading Investors
The ESMA highlighted concerns over the practice of crypto asset service providers (CASPs) offering both regulated and unregulated products on the same platform.
The regulator stated that this dual offering can create confusion for investors, who may not fully understand which products are protected under the EU’s Markets in Crypto-Assets (MiCA) regulation.
ESMA cautioned that some CASPs might “exploit their regulatory status as a marketing tool,” which could allegedly mislead customers into believing that all their offerings are subject to MiCA’s safeguards.
MiCA aims to enhance investor protection by introducing various measures, including strict rules on how client assets are handled and provisions for addressing customer complaints.
However, it is essential to note that not all products fall under this regulatory framework. For instance, direct investments in commodities like gold and certain crypto-asset lending practices remain outside the scope of MiCA protections.
New CASP License Requirements
According to Reuters, the backdrop for these regulatory efforts includes the notable collapse of several cryptocurrency platforms in 2022, such as FTX, which left countless investors with significant losses.
In response, the EU has instituted new rules requiring companies that provide crypto services to obtain a CASP license from national regulators. This license facilitates cross-border operations within the EU, effectively creating a more standardized regulatory environment.
In addition to these warnings, ESMA has also released guidelines outlining the necessary knowledge and competencies required from staff who assess digital asset companies.
The timing of ESMA’s statements is particularly noteworthy, coming just a day after the publication of a peer review concerning Malta’s licensing process for crypto firms.
The review criticized Malta’s Financial Services Authority for not conducting thorough enough risk assessments for certain unidentified crypto companies. While the Maltese regulator defended its role as a pioneer in digital asset regulation, it did not specifically address the criticisms raised by ESMA.
Per Reuters, concerns have also been voiced in private discussions among regulators about the rapid pace at which some EU member states are granting digital asset licenses.
Featured image from DALL-E, chart from TradingView.com
