Guidance for consumers in the context of virtual assets

Statement by CSSF I 5:00 pm, 27th April

More and more consumers are regularly exposed to promotion campaigns for “easy” investments in virtual assets by user-friendly exchange platforms. Such advertisements are done via social media platforms or other digital communication channels and highlight the possibility of earning high returns.

Virtual assets have historically shown a high risk, as well as a speculative nature and are consequently not a suitable investment for every type of investor.

Consumers that are interested in investing in virtual assets should therefore carefully read the CSSF warning on virtual assets  and/or initial coin offerings (ICOs) and tokens.

Consumers should also read the European Supervisory Authorities (EBA, ESMA and EIOPA – the ESAs) consumer warning, in which they remind consumers that some crypto-assets are highly risky and speculative and that consumers must be alert to the high risks of buying and/or holding these instruments, including the possibility of losing all their money.

Despite the numerous risks expressed in said warnings (pertaining notably to extreme volatility and bubble risk, low liquidity, absence of protection, lack of exit options, lack of price transparency, misleading information, unsuitability of virtual assets for most purposes, operational disruptions, counterparty, custody, fraud and manipulation risks), the general public’s appetite is increasing for this type of investment. Faced with this phenomenon, the legislator has recognised the need to regulate a certain number of risks brought about by investments in virtual assets, such as the AML/CTF risk, by including virtual asset service providers in existing AML/CTF laws and by developing a new legislation that aims at providing a legal framework for virtual assets that to this day did not fall under any regulation, i.e. the upcoming Markets in Crypto-assets Regulation (MiCA).

The present guidance is published, with the aim of helping those consumers, who despite the risks inherent to virtual assets are willing to invest in them, by outlining some minimum steps to be performed before investing. Nevertheless, the present guidance may not be interpreted as investment recommendation or investor protection measure in any way, nor can the following minimum steps be considered by potential investors as an absolute protection against fraud.

Minimum steps to perform before inveesting in virtual assets

Educate yourself

As a general principle you should never invest in any products or activities that you do not fully understand. This is even more true for virtual assets, which are a very diverse asset class and which have unique features, functions and risks (e.g. the absence of a central authority to issue said virtual assets, the use of cryptography and the DLT technology…) that distinguish them from traditional investment products.

Virtual assets are deprived of a detailed legal framework and consumer protection regime, contrary to financial instruments (whether the latter exist on the blockchain or not). As a result, consumers must take their own responsibility and gather relevant information in order to educate themselves before making any investment decisions in this context instead of blindly following trends.

Only invest after doing your own research in order to understand the use case and risks associated with the token (sometimes you may not even acquire a virtual asset but rather a derivative of a virtual asset), and only invest an amount of money that you can afford to lose. Therefore, you should carefully weigh up the risks and benefits associated with the proposed virtual asset.

There are many ways to educate yourself:

All you need to know is available online and can be found primarily on financial education platforms such as Other sources of information are the investor education pages from the websites of serious professionals. Further guidance for research is developed under point 2 “Prefer regulated entities offering crypto assets here below”.

You should also read the white paper accompanying the virtual assets (with the caveat that this is a document which is not reviewed by the CSSF should it even exist), as well as the contracts and general terms and conditions that are proposed to you by professionals.

Some of the fundamental topics consumers should gain knowledge on, are the underlying distributed ledger technology, the characteristics of the assets (notably what happens in case of loss or theft and whether there is a way to recover said tokens) and as previously mentioned all the inherent risks.

Consumers must get familiar with some basic concepts, such as the way virtual assets are safekept and the concepts of public and private keys.

Prefer regulated entities offering crypto assets

The CSSF advises consumers to privilege entering into contract with regulated or partially regulated entities offering crypto assets, as, given the applicable regulatory framework, there are different levels of insurance around some of the major risks pertaining to money laundering, terrorist financing or criminal activities, as well as fraud and manipulation.

In this context, it has to be noted that additional risks may arise if an entity is under some regulation in a foreign country which entails the application of the legal framework of a foreign jurisdiction. Consumers may indeed have very limited or no possibility to hold such professional liable in any way when the professional does not fulfill its obligations, falls into default or is hacked and which may result in the investor losing their whole investment.

Consumers must therefore assume their responsibility and verify which professional is best suited to provide the services and whether they really exist (there are indeed many scams) and are submitted to any kind of regulation, partial regulation (e.g. AML/CTF aspects) or none, as well as where they are regulated.

Information about the regulation of the entity should be available on the company’s website and we recommend crosschecking this information against the websites of relevant competent authorities.

Finally, potential investors are further reminded of the need to closely follow any regulatory developments, notably those concerning the prudential treatment of virtual assets and the related practical implications for their investments.

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