ESMA Warns: Investment Firms Misleading Customers with Crypto Offerings

ESMA Warns: Investment Firms Misleading Customers with Crypto Offerings


The European Securities and Markets Authority (ESMA) warns that investment firms promoting cryptocurrencies alongside traditional securities could mislead consumers about fair advice and compensation.

Corporations that market cryptocurrency alongside traditional securities can potentially mislead consumers about access to fair advice and compensation, the European Securities and Markets Authority worries.

Investment corporations in the European Union that offer cryptocurrency alongside more traditional products may be misleading their consumers into a false sense of safety, the European Securities and Markets Authority (ESMA) stated in a Thursday statement.

The EU agency stated it’s worried that corporations may use a seal of regulatory approval they have to offer traditional finance (TradFi) stocks or funds to make customers believe they’ll have access to sound financial advice or compensation schemes in the event of cryptocurrency mishaps.

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EU regulations known as the Markets in Financial Instruments Directive (MiFID) secure financing intermediaries encourage only appropriate financial products to clients – but do not always apply to more exotic financing opportunities like gold, real estate or non-transferable loans.

The EU’s Markets in Cryptocurrency Assets regulation (MiCA) is set to attract MiFID-style regulations to the sector, but the regime will only take effect in around 18 months. Meanwhile,  ESMA, a Paris-based agency that groups and coordinates national regulatory authorities, is worried some corporations are encouraging and exploiting the ambiguity.

“ESMA recommends that financing corporations take all necessary measures to secure that clients are fully aware of the regulatory status of the product/service they are receiving and clearly disclose to clients when regulatory protections do not apply,” ESMA stated, adding that regulatory approval shouldn’t be used as a promotional tool.

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ESMA has previously warned people cryptocurrency can be risky, while an October paper highlighted novel threats such as hacks and consensus manipulation. The agency is likewise set to consult shortly on detailed secondary laws that will put MiCA into effect.

Sandali Handagama.

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