UK Investors Risk Losing their Funds Investing in Cryptocurrencies: FCA

The United Kingdom’s financial watchdog, the Financial Conduct Authority, has published a new warning to investors.

In a recent statement published on its page, the regulator is warning UK investors to be wary of investing in crypto tokens and lending schemes. The financial regulator wants investors to stay clear of crypto investments unless they’re not ready to lose all their funds due to volatility in the market.

Too Risky, Too Complex

The FCA’s warning comes on the heels of a pullback in the crypto market. Bitcoin dropped from its record high of $42K to about $33K, and the total crypto market cap fell from its historic $1 trillion to around $930 million.

“Consumers should be aware of the risks and fully consider whether investing in high-return investments based on crypto assets is appropriate for them. They should check and carefully consider the crypto-asset business involved,” the FCA explained in its notice.

Barring most of these risks, the FCA also reminds investors of the lack of consumer protection in the crypto market. The regulator lists the absence of consumer protection institutions like the UK Financial Ombudsman Service—an independent body for settling disputes between UK-based firms and their customers.

The FCA also directed its attention to cryptocurrency firms. The regulator directed all crypto-related firms to seek authorization from them and comply with all the requirements, noting that firms that refuse to comply or seek authorization operate illegally and would be prosecuted.

Temporary License Issues

Getting a crypto license to operate in the UK hasn’t been as easy as it should. The number of applicants who applied around December 2020 was over 150, and none heard back from the regulator.

The financial regulator decided to issue temporary licenses to companies that submitted an application and had started trading before the Jan 10, 2021 deadline. The selection process for issuing temporary licenses has left a lot of businesses high and dry. Besides the slow-paced regulatory processes, businesses also have to contend with the ban on cryptocurrency futures and exchange-traded notes, which went into full effect last week.

“This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here,” the regulator explained.

The blanket ban was announced in October 2020, with the FCA explaining that the crypto products were not suited for retail investors. While the ban has come into full effect, there are speculations from expert commentators that the move would push UK investors towards unregulated offerings in other regions.