Shortly after the ban on trading in CFDs on cryptocurrencies came into effect in the UK, the UK Financial Conduct Authority (FCA) has issued a warning about cryptoasset investments promising high returns.
The regulator says it is aware that some firms are offering investments in cryptoassets, or lending or investments linked to cryptoassets, that promise high returns. Investing in cryptoassets, or investments and lending linked to them, 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.
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, the FCA stresses.
Firms offering these products should make sure they comply with all relevant regulatory requirements and are authorised by the FCA where this is required. Since January 10, 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 is concerned that some investments advertising high returns based on cryptoassets may not be subject to regulation beyond anti-money laundering requirements. In addition, significant price volatility in cryptoassets, combined with the inherent difficulties of valuing cryptoassets reliably, places consumers at a high risk of losses.
Furthermore, 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.
Also, consumers should consider the impact of fees and charges on their investment which may be more than those for regulated investment products.
Finally, firms may overstate the returns of products or understate the risks involved.
Consumers are advised to check if the firm they’re using is on the Financial Services Register or list of firms with Temporary Registration. If they’re not, consumers should ask the firm whether they are entitled to carry on business without being registered with the FCA. If they’re not, the regulator suggests that consumers should withdraw their cryptoassets and/or money. This is because the firm is operating illegally if it has not ceased trading by 9 January 2021.