knowledge | 28 February 2018 |

European Supervisory Authorities Issue Consumer Warning on Virtual Currency Risks

The European Supervisory Authorities ESMA, EIOPA and the EBA (“the ESAs”) have issued a warning to consumers about the risks associated with buying and/or holding virtual currencies (“VCs”) as well as tips for those planning to buy them (here).


VCs come in various forms with the first, Bitcoin launched in 2009.  Since then, many other VCs have emerged including Ether, Ripple and Litecoin.  These currencies are a digital representation of value which do not have the legal status of currency and are neither issued nor guaranteed by a central bank or public authority.  They have, however, proved popular with investors leading to the growth of a “bitcoin bubble”. Regulators, including the ESAs are concerned that consumers purchasing VCs expect that their value will continue to grow and are unaware of the high risk of losing the money they have invested.

The ESAs' latest warning follows an earlier warning and opinions by the EBA, two previous statements from ESMA on Initial Coin Offerings and an Alert on Initial Coin Offerings, published by the Central Bank of Ireland.

Why Are VCs Risky for Consumers?

According to the ESAs’ warning, the purchase of VCs, or financial products giving direct exposure to them, exposes consumers to a number of risks.  These include:

  • losing some or all of the money invested;
  • the absence of the guarantees and safeguards associated with regulated financial services, as VCs are unregulated under EU law;
  • the lack of exit options and price transparency meaning that it may not be possible to trade VCs or exchange them for traditional currencies for periods of time; or to receive a fair and accurate price when buying or selling VCs;
  • the potential for VC exchanges to suffer operational problems leading to trading disruptions; and
  • incomplete and/or misleading information being provided to consumers.

According to the ESAs, given their associated risks, VCs are unsuitable for most consumers including those with a short-term investment horizon and especially those pursuing long-term goals like retirement planning.


Consumers planning to buy VCs or financial products giving direct exposure to them should:

  • fully understand their characteristics and associated risks;
  • not invest money that they cannot afford to lose; 
  • ensure that they maintain adequate and up-to-date precautions on the devices and hardware they use for accessing VCs or for buying, storing or transferring them; and    
  • be aware that the purchase of VCs from a firm regulated for financial services will not mitigate against the various risks.

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.

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