EU securities watchdog warns investors over crypto market protections

Huw Jones
Tue, October 17, 2023 

FILE PHOTO: Bitcoin and ether souvenir tokens plunge into water


By Huw Jones

LONDON (Reuters) - Investors will not be protected under European Union cryptoasset market rules until at least the end of 2024, and even then they should still be ready to lose all their money, the bloc's securities watchdog said on Tuesday.

The EU was the first jurisdiction in the world to approve a comprehensive set of rules to regulate markets for cryptoassets like bitcoin, which entered into force in June but won't be fully applied until December 2024.

Regulating crypto has become more urgent for regulators after the collapse of crypto exchange FTX and with huge volatility in bitcoin prices.

Cryptoassets are currently unregulated under EU securities rules, and the European Securities and Markets Authority (ESMA) said investors would not benefit from any EU-level regulatory and supervisory safeguards, or recourse mechanisms under the new rules, known as MiCA, until December 2024.

"Even with the implementation of MiCA, retail investors must be aware that there will be no such thing as a ‘safe’ cryptoasset," the EU watchdog said in a statement.

"Can you afford to lose all the money you are planning to invest?" ESMA said, adding that cryptoassets were prone to "novel operational and security risks".

Full protections may not be available in EU states that grant an 18-month transitional period for crypto firms to operate without an EU licence, meaning customers may not be covered until July 2026.

A significant number of crypto firms would probably continue to offer their services under the transitional terms until mid-2026, ESMA said.

Crypto firms from non-EU countries will be allowed to provide services to customers in the bloc that have specifically requested them, and even then only on a "strictly limited" basis.

"While this exemption will be subject to further guidance by ESMA, it should be understood as very narrowly framed and as such must be regarded as the exception; and it cannot be assumed, nor exploited to circumvent MiCA," ESMA said.

The watchdog said it was working with national regulators to encourage convergence in applying MiCA rules as soon as possible so that firms understand that the EU is not a place for "forum-shopping or illicit practices".

(Reporting by Huw Jones; Editing by Emelia Sithole-Matarise)