The City regulator has warned consumers of the “very high risks” involved with some cryptoasset investments.
The Financial Conduct Authority (FCA) issued a statement on Monday which said it was aware of some cryptoasset firms offering investments or lending linked to the digital currencies, and said this generally involves taking very high risks with investors’ money.
“If consumers invest in these types of product, they should be prepared to lose all their money,” the FCA said.
“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.”
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The FCA outlined its specific concerns about cryptoasset investments for consumers.
One of these concerns relates to limited consumer protection. Some investments advertising high returns based on cryptoassets may only be subject to regulation beyond anti-money laundering requirements, the FCA said.
The regulator also highlighted price volatility, which can put consumers at high risk of losses, and product complexity, which can make it hard for consumers to understand the risks.
Other concerns related to potentially high fees on investments and misleading marketing material.
The regulator also warned that consumers are unlikely to have access to the Financial Ombudsman Service or the Financial Services Compensation Scheme if something goes wrong.
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Keith Richards, chief executive of the Personal Finance Society, which represents financial advisers, welcomed the FCA’s warning.
“This seems like a prudent intervention by the regulator to remind investors of the realities surrounding high risk ventures and why they should be wary of anything that sounds too good to be true,” he said.
“At a period of extreme financial vulnerability and instability in markets, people may be looking to invest in new areas to try and make greater financial gains. I don’t think anyone can argue that there has been a strong marketing push on the prospects of cryptoassets over the last few years.
“The danger, as the FCA set out, is that in some cases investors may be left without consumer protections such as the Financial Ombudsman Service and the Financial Services Compensation Scheme, and should only proceed if they are comfortable investing without those systems of redress.”
Since 10 January 2021, all UK cryptoasset firms must be registered with the FCA under regulations to tackle money laundering and operating without a registration is a criminal offence.