FCA issues warning over cryptoasset investments

The FCA has issued a warning to retail consumers on investing in cryptoassets that promise high returns.

The regulator said 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.

Concerns from the FCA about high-return cryptoasset investments include significant price volatility combined with the inherent difficulties of valuing cryptoassets reliably, as well as the complexity of some products and services relating to cryptoassets which can make it hard for consumers to understand the risks.

The regulator also warned that some investments advertising high returns based on cryptoassets may not be subject to regulation beyond anti-money laundering requirements, and highlighted that firm’s marketing materials may overstate the returns of products, or understate the risks involved.

All UK cryptoasset firms must be registered with the FCA under regulations to tackle money laundering, and the regulator has stated that operating without a registration is a criminal offence.

Consumers have still been urged to check whether the firm they’re using is on the Financial Services Register, and the FCA said that investors should fully consider whether investing in high-return investments based on cryptoassets is appropriate for them.

AJ Bell financial analyst, Laith Khalaf, commented: “The idea of getting rich quick is as dangerous as it is attractive and anyone who invests in crypto currencies should be prepared to lose their shirt, or a considerable portion of it.

“The regulator is clearly concerned that the high risks already inherent in cryptoassets are being compounded by scam activity, as well as unregulated firms targeting consumers with marketing material that highlights the rewards, but not the potential downside, of investing in cryptoassets.

“You can see how the rapid price appreciation of Bitcoin, combined with aggressive marketing and low interest rates on cash, creates a perfect storm for consumers looking to get a decent return on their money.

“Unfortunately Bitcoin and other cryptoassets are subject to dramatic price falls as well as rises. Consumers should be on high alert for unsolicited communications linked to Bitcoin or other crypto currencies and should consider any marketing material with an extremely critical eye.”

Nutmeg chief investment officer, James McManus, added: “Cryptoassets have generated a lot of media hype and have even been the focus of social media platforms looking to branch out into investments and payments, but the reality is, it is very difficult for anyone to reliably assess the risks associated with them.

“There are issues with volatility, transparency, custody, fraud, liquidity and diversification. Not to mention that cryptoassets remain unregulated by the FCA. Cryptoassets are ill-suited for retail consumers, and it is right that the regulator is warning consumers to prevent the novelty of these products causing potential long-term harm to retail consumers.”

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