If consumers invest in these types of product, they should be prepared to lose all their money, reads FCA’s recent statement.
The Financial Conduct Authority is the conduct regulator for nearly 60,000 financial services firms and financial markets in the UK and the prudential supervisor for 49,000 firms, setting specific standards for 19,000 firms.
Pursuant to the message from the UK’s FCA, “as with all high-risk, speculative investments, consumers should make sure they understand what they’re investing in, the risks associated with investing, and any regulatory protections that apply”.
“For cryptoasset-related investments, consumers are unlikely to have access to the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS) if something goes wrong”.
Consumers should be wary if they’re contacted out of the blue, pressured to invest quickly or promised returns that sound too good to be true, FCA says.
“Firms offering these products should make sure they comply with all relevant regulatory requirements and are authorized by the FCA where this is required. Since 10 January 2021, all UK cryptoasset firms must be registered with the FCA under regulations to tackle money laundering. Operating without a registration is a criminal offence”.
The FCA’s concerns about high-return investments based on cryptoassets include:
“Consumer protection: Some investments advertising high returns based on cryptoassets may not be subject to regulation beyond anti-money laundering requirements.
Price volatility: Significant price volatility in cryptoassets, combined with the inherent difficulties of valuing cryptoassets reliably, places consumers at a high risk of losses.
Product complexity: The complexity of some products and services relating to cryptoassets can make it hard for consumers to understand the risks. There is no guarantee that cryptoassets can be converted back into cash. Converting a cryptoasset back to cash depends on demand and supply existing in the market.
Charges and fees: Consumers should consider the impact of fees and charges on their investment which may be more than those for regulated investment products.
Marketing materials: Firms may overstate the returns of products or understate the risks involved.
Consumers should be aware of the risks and fully consider whether investing in high-return investments based on cryptoassets is appropriate for them. They should check and carefully consider the cryptoasset business involved”.
