EU Securities Watchdog Cautions Investors About Crypto Market Protections, According to Reuters

By Huw Jones

LONDON – Investors in the EU will not be afforded protections under new cryptoasset market regulations until at least the end of 2024, and they should still be prepared for the possibility of losing their entire investment, according to the region’s securities regulator.

The European Union has taken the lead as the first global jurisdiction to establish a comprehensive framework for regulating markets related to cryptoassets, including bitcoin. While these rules came into effect in June, they won’t be fully implemented until December 2024.

The urgency for crypto regulation has intensified in light of the collapse of the FTX exchange and the significant volatility in bitcoin prices. Currently, cryptoassets fall outside the scope of existing EU securities regulations. The European Securities and Markets Authority (ESMA) has indicated that investors will not benefit from regulatory protections or recourse mechanisms under the new framework, known as MiCA, until the end of 2024.

In a statement, ESMA cautioned that even with the implementation of MiCA, there are no ‘safe’ cryptoassets. The authority emphasized that potential investors should consider whether they can afford to lose their entire investment, pointing out the "novel operational and security risks" associated with cryptoassets.

Moreover, full protections might not be available in EU member states that allow an 18-month transition period for crypto firms to operate without an EU license. This could delay customer protections until July 2026. ESMA noted that many crypto firms are likely to continue operations under these transitional terms until mid-2026.

In addition, crypto firms based outside the EU will be permitted to provide services to customers within the bloc, but only if those customers have specifically requested such services and on a "strictly limited" basis. ESMA specified that these exemptions will be narrowly defined and should not be used to circumvent the rules outlined in MiCA.

The agency is collaborating with national regulators to create consistency in the application of MiCA regulations, ensuring that the EU is not seen as a haven for "forum-shopping or illicit practices."