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Crypto investor protections won’t take effect in EU until late 2024

Cryptocurrency investors in Europe are not yet protected under European Union cryptocurrency asset market rules, and it will take some time for the protections to take effect.

On Oct. 17, Europe’s securities regulator, the European Securities and Markets Authority (ESMA), issued a statement about the transition to the European crypto regulations known as the Markets in Crypto-Assets Regulation (MiCA).

The ESMA emphasized that MiCA-based crypto investor protections will not come into effect until at least December 2024, meaning that investors must be prepared to lose all the money they plan to invest in crypto. The authority added:

“Holders of crypto-assets and clients of crypto-asset service providers will not benefit during that period from any EU-level regulatory and supervisory safeguards […] such as the ability to file formal complaints with their NCAs [National Competent Authorities] against crypto-asset service providers.”

Even after December 2024, there is no guarantee investors will be fully protected by MiCA up to 2026. After MiCA becomes applicable to crypto asset service providers in late 2024, member states still have the option of granting crypto service providers an additional 18-month “transitional period” allowing them to operate without a license, which is also referred to as a “grandfathering clause.”

“This means that holders of crypto-assets and clients of crypto-asset service providers may not benefit from full rights and protections afforded to them under MiCA until as late as July 1, 2026,” the ESMA wrote. Most NCAs will have limited powers to supervise those who benefit from the transitional period, depending on local laws.

“In most cases, these powers are confined to those available under existing anti-money laundering regimes, which are far less comprehensive than MiCA,” the ESMA added.

Retail investors must be aware that there will be no such thing as a safe crypto asset even once MiCA is implemented, the authority stressed, adding:

“ESMA reminds holders of crypto-assets and clients of crypto-asset service providers that MiCA does not address all of the various risks associated with these products. Many crypto-assets are by nature highly speculative.”

The latest warnings from the ESMA come shortly after the regulator released a second consultative paper on MiCA on Oct. 5 after enforcing the regulations in June 2023.

Related: EU mulls more restrictive regulations for large AI models: Report

During the implementation phase of MiCA, the ESMA and other related authorities are responsible for consulting with the public on a range of technical standards that are expected to be published sequentially in three packages.

MiCA implementation timeline. Source: ESMA

Officially introduced in 2020, MiCA aims to provide legislation to regulate crypto assets in Europe by amending existing laws, specifically Directive 2019/1937. The groundwork of MiCA was initiated in 2018 due to the growing public interest in investing in cryptocurrencies.

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