The chair of a top European financial regulator says investing in crypto remains risky despite new regulation coming into force in the EU.
“It is important to remember that even with the implementation of the Markets in Crypto Assets Regulation, which is clearly a step forward, there will be no such thing as a safe cryptoasset,” said Verena Ross, chair of the European Securities and Markets Authority.
“Consumers need to be aware that MiCA does not provide the same protection as for traditional financial products,” she said in an interview with the European Central Bank published on 16 August.
Parts of MiCA came into force in June. The rules bring stablecoins — often used to bridge traditional finance and cryptoassets — into the regulatory perimeter.
MiCA forces crypto providers to hold capital reserves to back stablecoins while also limiting them to €200m in transactions a day.
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Ross also took aim at credit default swaps, which became a cause of concern during the March banking crisis.
“The events at the end of March confirmed that the single-name CDS market has limited trading activity and low liquidity,” she said. “This means a small number of trades can have a large price impact, resulting in sharp changes in spreads. Since CDSs are commonly used as an indicator for credit risk, these movements can have consequences for wider investor sentiment and impact share prices and other financial markets.”
Credit default swaps act as a form of insurance policy in case a company goes insolvent. They are traded over-the-counter. On 24 March. a small number of trades in Deutsche Bank’s CDS pushed spreads up, spooking investors and causing the German lender’s stock to drop 8.5%.
The International Swaps and Derivatives Association found that non-sovereign single name CDSs were quite illiquid. Outside of volatile periods such as the first quarter of 2023 and the first half of 2020, less than 20 entities on average had more than 10 CDS trades a day over the past five years.
Ross is not the first EU official to criticise the opaque CDS market. Andrea Enria, chair of the ECB’s supervisory board, also called the market “very opaque, very shallow and very illiquid” in March.
“We continue to argue for enhanced transparency in the CDS and other OTC derivatives markets – with appropriate tailoring where necessary,” Ross said.
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To contact the author of this story with feedback or news, email Jeremy Chan
