The FCA warns about cryptoasset risks

Syedur Rahman of financial  crime specialists Rahman Ravelli details the Financial Conduct Authority’s recent statements regarding cryptoassets

The Financial Conduct Authority (FCA) has emphasised the lack of legal protection for those investing in cryptoassets.

In a statement, it refers to “some recent social media posts regarding cryptoassets and non-fungible tokens (NFTs)’’ and says that it cannot comment on individual products. But it states – not for the first time – that it has not been given regulatory oversight over direct investments in cryptoassets and NFTs.

The Authority warns that there are no consumer protections for those who buy cryptoassets and NFTs. It highlights the fact that the buyers of such assets would not be protected by the Financial Services Compensation Scheme; going as far as to say “if you buy cryptoassets you should be prepared to lose all the money you invest’’.

Its statement says that those who market cryptoassets must abide by the guidelines set out by the Advertising Standards Authority (ASA) and state that cryptoassets are not regulated by the FCA or protected by financial compensation schemes. The  FCA adds that the ASA has investigated numerous cryptocurrency adverts that did not make it clear that the product was neither regulated nor protected in the UK.

The FCA refers would-be cryptoasset and Non-Fungible Token'>NFT investors to its InvestSmart pages, which outline matters such as what investors need to ask before they invest and the characteristics of high-risk investments.

In these pages, the FCA states that investors need to consider:

• Whether they could afford to lose the money they are planning to invest.
• The importance of fully understanding the nature of the investment and the associated risks.
• The possible benefit of seeking professional investment advice.
• If they are comfortable with the level of risk that an investment carries.
• The ease with which they could take their money out of the investment at a later date.
• Whether the investments are regulated.
• The amount of protection (if any) should the investment provider go out of business.

The FCA warns that high-risk investments should be viewed with caution, as they are only suitable for experienced investors who understand the risks. It classes cryptoassets as high-risk investments, along with mini-bonds, structured products (which provide a return based on the performance of an asset), land banking and contracts for difference (which are financial contracts that pay the differences in the settlement price between the open and closing trades).

Although the FCA is making such warnings, it is not surprising that it has not been given regulatory oversight over direct investments in cryptoassets and NFTs. The lack of law enforcement activity in the UK regarding crypto has been a regular source of complaint by consumers. The UK government has, however, recently announced the Economic Crime and Corporate Transparency Bill; part of which focuses on cybercrime and the way that cryptocurrencies are used by the likes of fraudsters and ransomware attackers to make illegal gains.

If the Bill becomes law, enforcement agencies will be equipped with new powers that will enable them to seize cryptoassets easier and quicker if they are believed to have been involved in crime. This should give a degree of hope for consumers in this space.