Three main authorities overseeing financial regulation in the European Union have warned consumers from purchasing virtual currencies (VCs), saying they are ‘highly risky.’
The European Supervisory Authorities (ESAs) for securities (ESMA), banking (EBA) and insurance and pensions (EIOPA) said cryptocurrencies are ‘unregulated products’ which are also ‘unsuitable as investment, savings or retirement planning products.’
“The ESAs are concerned that an increasing number of consumers are buying VCs unaware of the risks involved,” said an ESA statement, “VCs such as Bitcoin, are subject to extreme price volatility and have shown clear signs of a pricing bubble and consumers buying VCs should be aware that there is a high risk that they will lose a large amount, or even all, of the money invested.”
An issue of concern to the tri-partite panel is that consumers buying VCs are not covered by the protection given to other financial services as they are not regulated under EU law.
This means if a VC exchange goes out of business, for example, or consumers have their money stolen because of a cyberattack, there is no EU law to cover their loss, ESA stated.
“Some VC exchanges have been subject to severe operational problems in the past. During these disruptions, consumers have been unable to buy and sell VCs when they wanted to and have suffered losses due to price fluctuations during the period of disruption.”
The cautions from the European supervisors adds to the growing number of warnings and criticisms that regulators and senior industry figures have put forward about cryptocurrency trading.
This year, hackers targeted one of Japan’s largest digital currency exchanges Coincheck, causing it to lose some $530 million. In 2014, another Tokyo exchange MtGox collapsed after admitting that $400 million had been stolen from its network.
Japan, the US and Australia are the few major countries that regulate this field.