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The United Kingdom Financial Conduct Authority (FCA) has delivered a major blow to the crypto investors, stating that the investors in such products should be ready to lose it all.
Be Prepared to Lose All Your Money!
In an official warning, the FCA has highlighted the risks associated with crypto-based investment products promising high returns to investors.
As per the FCA, the organisation is well aware of the fact that some firms are promising high returns on investment products linked to cryptoassets. Consequently, it is issuing a warning, urging the consumers to thoroughly consider and understand the high-risk associated with speculative investment products. Additionally, the consumers need to be aware of what they are investing in and any regulatory protections that apply.
Also Read: Cryptocurrency Market Cap Crosses $1 Trillion As Bitcoin Soars Above $40,000
No Access to FOS and FSCS
The FCA also mentioned that the investors in cryptoassets are unlikely to have access to the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS). However, if anything goes wrong, the investors in such assets could refer to PS19/22 Guidance on Cryptoassets.
Furthermore, in a suggestion to firms dealing with cryptoassets-related investment products, the regulator has asked them to comply with all relevant regulatory requirements. They should also be authorised by the FCA, the regulator highlighted.
From 10 January 2021, the UK-based firms offering such products are required to seek registration with the FCA to tackle money laundering. The authority has made it clear that operating without such registration is a criminal offense.
©Kalkine Group 2021
Must Read: Everything you need to know about cryptocurrency and related tax regulations
Associated Risks with Cryptoassets
The FCA has highlighted the below-mentioned concerns regarding high-return investments based on cryptoassets.
- Consumer Protection
On this counter, the FCA cited that some regulatory actions might not be applicable on few investments advocating high returns based on cryptoassets, except anti-money laundering requirements.
- High Volatility
The risk of whipsaw is one of the most prevalent risks of the cryptospace. The FCA has highlighted the same while mentioning that such assets do not have any reliable method of valuing them, consequently placing consumers at a high risk of losses.
- Product Complexity
The complexity of some products linked to cryptoassets may cloud the inherent risk. Additionally, there is absolutely no guarantee that cryptoassets could be converted into cash.
- Charges and Fees
Consumers are required to mull the impact of charges and fees for the management of such products on their investment that might be more as compared to traditionally-regulated investment products.
- Marketing Material
The FCA has highlighted that consumers should be aware of the manipulation of true risk and reward of such products, where firms might choose to overstate returns while understating the associated risks.
Must Read: What advice to follow before purchasing bitcoin and other cryptocurrencies?
Ideal Course You Should Take
The FCA has also suggested an ideal course of action for the investors in such products.
