European regulator warns of ‘lesson of caution’ from crypto crash

Crypto investors should take the stock market crash as a “lesson of caution” about investing money in unregulated risky assets and cannot count on any type of bailout, Europe’s top securities regulator has said.

“We had already warned at the beginning of the year. . . about the serious risks retail investors were taking by investing in some of the crypto assets,” said Verena Ross, Chair of the European Securities and Markets Authority.

The global crypto market has fallen over 70% in the past year, and Ross said she worries about the implications for retail investors.

“I think there’s a real question about whether a lot of these [crypto assets] will survive. . . Hopefully some of these investors will see this and at least take a lesson in caution about how much money they put into these types of assets.

She added that there was no prospect of a European bailout for direct investors because warnings about the dangers had been so widespread.

In March, ESMA and other major European financial regulators warned consumers of the “very real possibility of losing all of their invested money” if they purchased cryptocurrency, using stronger language than an equivalent Attention one year earlier.

“We’ve all said it’s something that’s not currently regulated, not something where it’s a check on suppliers, [where] we know there’s a lot of fraud and aggressive marketing going on,” Ross said, adding that regulators have been using social media to try to get their warnings across to audiences most engaged in crypto.

ESMA prepares to assume licensing responsibility for The largest crypto-asset service providers in Europe under a landmark agreement reached in Brussels last month, which also includes provisions such as mandatory environmental disclosures and some consumer protection for things like lost crypto wallets.

The agreement comes into force from mid-2023 and has an implementation period of 18 months. Ross said it was important to act as soon as possible and push for the “convergence” of national rules already in place, echoing calls from the ECB last week.

ESMA is also monitoring developments in commodities and other markets as inflation and interest rates rise and the sharp deterioration in the economic environment fuels volatility.

“We see real risks of market reactions to changes in the economic environment,” Ross said, adding that regulators are trying to understand “where those risks might arise from so that . . . at least we are aware of the significant market corrections that could occur”.

Mary I. Bruner