Bear juggling various crypto coin symbols
Photoillustration by Investment Executive with files from

As firms prepare for Europe’s new regulatory regime for the crypto sector, investor protections are scarce, regulators say.

The European Securities and Markets Authority (ESMA) on Tuesday called on crypto firms to start planning for the adoption of its new regulatory framework, known as Markets in Crypto-Assets Regulation (MiCA), which takes effect in December 2024.

“ESMA encourages market participants to make adequate preparations that will reduce the risk of disruptive business model adjustments,” it said.

The regulator noted that, along with national policymakers, it’s working on standards and guidance to help implement the new regime that will enhance safeguards.

However, these added safeguards won’t protect investors during the implementation period, it warned. Moreover, local regulators will be able to extend the transition period by up to 18 months to mid-2026 under the grandfathering provisions.

Even when the MiCA does take effect, it won’t render the crypto market safe for retail investors, ESMA said.

“Many crypto-assets are by nature highly speculative. Moreover, crypto-assets are prone to novel operational or security risks, not least due to the underlying technology, which is still in a relatively nascent stage,” ESMA said. “Even with the implementation of MiCA, retail investors must be aware that there will be no such thing as a ‘safe’ crypto-asset.”

Additionally, ESMA pointed out that many global crypto firms have complex and opaque organizational structures that make it tough for regulators to oversee, and for investors to know who they’re dealing with.

Given the “limited and uneven protections for crypto-asset holders and clients of crypto-asset service providers” during the transition period, ESMA also called on national regulators to enhance cooperation and pursue convergence in supervision during the implementation and transitional phases.

In a letter to European policymakers at the Economic and Financial Affairs Council (ECOFIN), ESMA chair Verena Ross also called on policymakers to consider limiting the optional grandfathering period to 12 months.