Europe’s crypto rules need tougher investor protections, the European Securities and Markets Authority (ESMA) says.
In a submission to the European Commission’s public consultation on possible changes to its new crypto regulation regime, known as the Markets in Crypto-Assets Regulation (MiCA), the regulators detail their proposed enhancements.
Since that regime took effect in July, the regulators say the new rules have established a “solid framework for investor protection,” but that there are also potential gaps in the rules — and that the level of investor protection in the crypto space “remains less comprehensive and distinct from the regulatory framework applicable to traditional financial instruments.”
As a result, the regulators are now calling for a handful of investor protection reforms — including measures to enhance cost disclosure; more stringent rules on marketing, particularly for crypto assets being promoted by finfluencers; and disclosure requirements for staking, lending and borrowing.
“These measures would provide clearer information on costs, risks, rewards, collateral arrangements, and potential losses before investment decisions are made,” ESMA said.
At the same time, the regulators called for stronger powers to deal with unauthorized crypto firms and outright fraudsters in the space.
Specifically, ESMA recommends enhancing its capacity to detect and deactivate fraudulent sites, and to freeze crypto assets in cases of suspected market abuse or financial crime. It also seeks stronger supervisory powers for dealing with unregulated firms and new rules to require regulated firms to seek authorization before offering stablecoin-linked services.
“These measures would support faster and more consistent supervisory action across the EU, better protecting investors, and reducing opportunities for regulatory arbitrage,” it said.
ESMA also calls for greater clarity on determining when activities are considered to be genuinely decentralized and on how crypto assets should be classified, including new products such as hybrid tokens.
Finally, the regulators also recommend streamlining certain parts of the existing regulation to improve consistency and reduce duplicative registration requirements in certain areas — and, they call on policymakers to develop a framework for tokenized securities and on-chain settlement to support the development of an integrated market for tokenized securities.