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ESMA Urges Investment Firms to Prioritize Client Awareness of Crypto Asset Regulations

The European Securities and Markets Authority (ESMA), the financial watchdog of the European Union, has issued a statement emphasizing the need for investment firms to ensure that their clients are well-informed about the regulatory status of the products they are offering.

The ESMA highlighted the concerns surrounding crypto assets and reminded companies that, despite ongoing regulatory developments, most jurisdictions still lack cryptocurrency regulations.

In its announcement, the ESMA acknowledged that the Markets in Crypto-Assets Regulation (MiCA) is nearing adoption; however, until it takes effect, crypto assets offered by investment firms will remain largely unregulated in many jurisdictions.

The ESMA expressed apprehension about the risks associated with unregulated products and services, which can pose prudential and investor protection risks. Furthermore, the financial watchdog warned that clients may be misled regarding the level of protection they receive.

To address these concerns, the ESMA recommended that investment firms take proactive measures to ensure that their clients are fully aware of the regulatory status of the products they are investing in. It further advised companies to inform clients when regulatory protections do not apply to the products or services offered.

Additionally, the ESMA urged investment firms to consider the potential impact of engaging in unregulated activities on their businesses when developing risk management policies and systems. By doing so, firms can effectively mitigate the associated risks.

The growing interest in the European crypto market is evident as more companies establish a presence in the region. Recently, Gemini, a prominent cryptocurrency firm, selected Ireland as its entry point into the European Union. Gemini’s founder, Cameron Winklevoss, confirmed the company’s decision to make Ireland its European base.

This move follows Kraken, another leading cryptocurrency exchange, which has already commenced preparations to expand its operations in Europe. Ireland’s central bank granted Kraken’s Dublin-based subsidiary authorization as a virtual asset service provider on April 18.

As the crypto industry continues to evolve, regulatory bodies such as ESMA actively emphasise the importance of ensuring transparency and clarity for investors. By providing accurate information about the regulatory status of crypto assets, investment firms can contribute to a safer and more informed investment environment.


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