Crypto Investors Brace For Risk After EU Watchdog Warning

The European Securities and Markets Authority (ESMA) has issued a stark warning to crypto investors. Despite the recent introduction of EU cryptoasset market rules, full protections won’t be in place until the end of 2024, the bloc’s securities said on October 17.

The EU watchdog, ESMA advises investors to consider the high risks associated with cryptocurrencies and urges EU regulators to take swift action. This news comes as regulators worldwide grapple with the volatile crypto market and recent incidents such as the FTX exchange collapse.

EU Investors To Face Crypto Risk Until 2024

The European Union made history by approving comprehensive regulations for cryptoassets, which came into effect in June. However, ESMA cautions that full implementation of these rules is not expected until December 2024.

The latest announcement emphasizes that investors should be aware that, even with the new rules, no cryptoasset can be deemed ‘safe,’. Notably, ESMA highlights the high-risk nature of cryptocurrencies, which carries the potential for financial losses.

Meanwhile, the ESMA’s warning also raises concerns about the 18-month transitional period during which some crypto firms can operate without an EU license. This means that customers may not have full protection until July 2026.

Limited Safeguards in Transitional Period

The latest warning from the EU watchdog has sparked speculations in the market. While crypto firms from non-EU countries may serve EU customers under strict conditions, ESMA clarifies that this should be seen as an exception, not a loophole to circumvent regulations.

On the other hand, ESMA is also urging crypto companies to prepare for the upcoming MiCA rules, eschewing any reliance on a lengthy transitional phase. The new regulatory framework, approved earlier this year, will require digital asset firms offering services in the EU to register with local regulators.

Although MiCA is set to be in force by January 2025, the 18-month transitional period may extend de-facto implementation until mid-2026.

ESMA anticipates that many crypto firms already serving EU customers will leverage this transitional period, raising concerns about potential regulatory arbitrage. Until MiCA’s full implementation, consumers are cautioned that existing local rules remain in place, leaving their crypto investments unprotected.

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