Investment firms in the European Union that offer crypto alongside more traditional products could be misleading their consumers into a false sense of security, the European Securities and Markets Authority (ESMA) said in a Thursday statement.
The EU agency said it’s worried that firms 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 crypto mishaps.
EU rules known as the Markets in Financial Instruments Directive (MiFID) ensure investment intermediaries promote only appropriate financial products to clients – but don’t always apply to more exotic investment opportunities like gold, real estate or non-transferable loans.
The EU’s Markets in Crypto Assets regulation (MiCA) is set to bring MiFID-style rules to the sector, but the regime will only take effect in around 18 months. In the meantime, ESMA, a Paris-based agency that groups and coordinates national regulators, is worried some companies are encouraging and exploiting the ambiguity.
“ESMA recommends that investment firms take all necessary measures to ensure 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 said, adding that regulatory approval shouldn’t be used as a promotional tool.
ESMA has previously warned people crypto can be risky, while an October paper highlighted novel threats such as hacks and consensus manipulation. The agency is also set to consult shortly on detailed secondary laws that will put MiCA into effect.
Read more: EU’s ESMA Raises Alarm Bells Over Growing Crypto Use as It Prepares for New Powers
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