CASPs offering Unregulated Services

The European Securities and Markets Authority (ESMA) has today issued a statement on how Crypto-Asset Service Providers (CASPs) should avoid misperceptions when offering and marketing both regulated and unregulated services.

In its statement, ESMA reminds CASPs of their obligation to act professionally, fairly and in accordance with the best interests of their clients or prospective clients.

When offering services (both regulated and unregulated) CASPs have to avoid creating confusion or misleading clients (even prospective ones) as to whether the service benefits from the protections given by the Markets in Crypto-Assets Act (MiCA). ESMA notes that providing both MiCA-regulated and unregulated produces and services will give rise to investor protection risks and thus the necessary safeguards must be put in place.

ESMA has highlighted that unregulated activities conducted by CASPs do not provide the same safeguards as those services which are regulated under MiCA. Those activities which are regulated by MiCA include requirements which are intended to offer such preventive measures, including the management of conflicts of interests, complaints of handling requirements, safeguarding of clients’ assets, and ongoing supervision by national competent authorities.

A CASP must be careful so as not to provide a ‘halo effect’ over all its services or products. This halo effect happens when a CASP is regulated under MiCA and misguided reassurance is given suggesting that all the products / services are equally protected under MiCA. This status of being regulation under MiCA is also sometimes used as a marketing argument by encouraging the confusion between unregulated and regulated products or services.

CASPs must avoid confusing clients and prospective clients by implying that the same protections are attached to unregulated products and / or services. To avoid this CASPs should take all necessary measures so as to ensure that clients (and prospective clients) would be fully aware of the regulatory status of the product or service they are receiving. To do this, CASPs should:

• Clearly show and communicate their regulatory status in all dealings and all  stages of the process with clients;
• Clearly distinguish unregulated activities on their websites and platforms;
• Clearly communicate the legal and regulatory status and conflicts of interests which are managed in line with MiCA requirements;
• Show pop-ups windows to inform clients when they are accessing an unregulated product or service including having a tick box where the client can acknowledge that he has read the information provided.

In the inverse, CASPs should not:

• Use terminology which implies that a product or service falling outside of the scope of MiCA or other EU sectoral legislation is regulated in any way where this is not the case
• Only show information as to the unregulated status of a product or service in the Terms and Conditions
• Use the CASP’s regulatory status as a promotional tool
• Provide ambiguous information as to which entity is providing the unregulated service and/or product

For any other information or assistance, please contact us at info@gtg.com.mt

Authors: Dr Cherise Abela Grech & Dr Kimberley Blundell