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<p class="is-style-lead">The European Securities and Markets Authority (ESMA) has recently urged cryptocurrency companies to explicitly label cryptocurrencies as unregulated when offered to investors, amid concerns about potential investor protection and financial risks.</p>



<p>The European Securities and Markets Authority (ESMA), an EU regulatory body, recently spotlighted concerns about the <a href="https://crypto.news/g20-nations-pursue-unified-approach-to-address-crypto-risks/" target="_blank" data-type="URL" data-id="https://crypto.news/g20-nations-pursue-unified-approach-to-address-crypto-risks/" rel="noreferrer noopener">risks present</a> in the cryptocurrency sector.</p>



<p>The ESMA along with the National Competent Authorities (NCAs), in a recent <a href="https://www.esma.europa.eu/sites/default/files/2023-05/ESMA35-36-2813_Statement_on_investment_firms_providing_unregulated_services.pdf" target="_blank" data-type="URL" data-id="https://www.esma.europa.eu/sites/default/files/2023-05/ESMA35-36-2813_Statement_on_investment_firms_providing_unregulated_services.pdf" rel="noreferrer noopener">announcement</a>, advocated that if a company presents <a href="https://crypto.news/market-cap/" target="_blank" data-type="URL" data-id="https://crypto.news/market-cap/" rel="noreferrer noopener">cryptocurrencies</a> to investors, it should explicitly indicate that these assets are unregulated. Intriguingly, such propositions are being promoted as viable alternatives to the regulated financial instruments encompassed within the MiFID II framework.</p>



<figure class="wp-block-image size-full is-resized"><img decoding="async" src="https://crypto.news/app/uploads/2023/05/267D3825-DF0B-4604-82C0-1641EC397DA4_1_201_a.jpeg" alt="ESMA warns of unregulated crypto before MiCA launch - 1" class="wp-image-14161978" width="618" height="878"></figure>



<p>The Second Markets in Financial Instruments Directive, also known as MiFID II, was launched in 2014 and came into effect in 2018. This directive is a regulatory structure established by the European Union for managing financial markets.</p>



<p>While the EU is on the brink of adopting the Markets in Crypto Assets (<a href="https://crypto.news/mica-explained-what-does-the-eus-first-crypto-regulation-mean-for-the-industry/" target="_blank" data-type="URL" data-id="https://crypto.news/mica-explained-what-does-the-eus-first-crypto-regulation-mean-for-the-industry/" rel="noreferrer noopener">MiCA</a>) legislation, which aims to provide a framework for cryptocurrency businesses, it is predicted that these assets will stay largely unregulated in several jurisdictions until MiCA becomes active in 2025.</p>



<p>During this transitional period, the ESMA has expressed worries about potential investor protection and financial risks. These include investors receiving misleading information about their protection levels, uncertainty surrounding products, and the misrepresentation of products to customers.</p>



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<p>According to the ESMA, activities involving <a href="https://crypto.news/crypto-should-be-treated-as-gambling-ecb-board-member-says/" target="_blank" data-type="URL" data-id="https://crypto.news/crypto-should-be-treated-as-gambling-ecb-board-member-says/" rel="noreferrer noopener">unregulated products</a> can pose a significant threat to the stability of investment firms and might endanger the firm&#8217;s ability to comply with its regulatory responsibilities.</p>



<p>The ESMA urges investment firms to prioritize their clients&#8217; interests by ensuring fairness, professionalism, and clear and concise communication. They are encouraged to make sure clients are fully aware of the regulatory status of the product or service they are purchasing and clearly communicate when regulatory protections are not provided.</p>



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<p><strong>EU clears the path for crypto</strong></p>



<p>ESMA&#8217;s guidance represents another step towards <a href="https://crypto.news/coinbase-advocates-for-better-crypto-regulations-in-us/" target="_blank" data-type="URL" data-id="https://crypto.news/coinbase-advocates-for-better-crypto-regulations-in-us/" rel="noreferrer noopener">clearer regulation</a> in an industry that is constantly evolving.</p>



<p>The MiCA legislation, which was approved by European legislators in April, will offer a comprehensive framework for cryptocurrency companies in Europe. It will bring in stricter regulations for <a href="https://crypto.news/eu-raises-alarm-over-potential-bank-threats-posed-by-stablecoins/" data-type="URL" data-id="https://crypto.news/eu-raises-alarm-over-potential-bank-threats-posed-by-stablecoins/" target="_blank" rel="noreferrer noopener">stablecoins</a>, call for increased disclosure from all cryptocurrency businesses, and ensure that anti-money laundering (AML) and data security measures are in place.</p>



<p>This legislation will be in force from July 2023, but will only be applicable 18 months after this date, i.e., in January 2025.</p>



<p>Until then, as advised by the ESMA, investors and businesses should act with caution.</p>



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ESMA warns of unregulated crypto before MiCA launch

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