The European Securities and Markets Authority (ESMA) has issued a statement emphasizing the need for investment firms to inform their clients about the regulatory status of the products they offer.
The European Union’s financial regulatory body specifically addressed the issue of crypto assets and reminded companies that, despite ongoing regulatory developments, many jurisdictions still lack oversight for crypto assets.
According to ESMA, certain Member States have established domestic legislation and specialized frameworks to safeguard investors in cases where investment firms sell unregulated products or services, crypto assets offered by investment firms will remain unregulated in most jurisdictions until Markets in Crypto-Assets Regulation (MiCA)comes into effect.
The ESMA stated:
“However, specialist regimes may not exist in all Member States and may also not address all unregulated products encountered.”
ESMA also identified risks associated with unregulated products and services. These risks include the potential for investors to be misled about the level of protection they receive, especially when unregulated products or services are presented alongside regulated ones on websites that do not clearly indicate their regulatory status. There is also a risk that investors may not fully understand the nature and risks of these products and services, leading to confusion. Additionally, some investment firms may intentionally create confusion between regulated and unregulated offerings.
To mitigate these risks, ESMA recommended that investment firms adopt various measures to enhance clients’ awareness of the regulatory status of the products they are investing in. The regulatory body also advised firms to provide clear information to clients about situations where regulatory protections may not apply to their products or services.
Furthermore, the ESMA emphasized that investment firms should consider the potential impact of unregulated activities on their business when formulating risk management policies and systems.
By highlighting these issues and providing guidance, ESMA aims to protect investors and ensure transparency in the investment industry.
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