FCA warns crypto investors could ‘lose all their money’

The Financial Conduct Authority, the UK’s financial regulator, has warned consumers of investments advertising high returns based on crypto assets, after the price of bitcoin more than doubled to reach an all-time high of close to $42,000 in less than one month.

Investing in crypto assets or products linked to them generally involves high risks, the FCA said.

“If consumers invest in these types of product, they should be prepared to lose all their money.”

The regulator advised that as with all speculative investments, consumer should make sure they understand what they are investing in, the risks involved and what regulatory protections apply.

The FCA 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.”

Since 10 January 2021, all UK crypto asset firms must be registered with the FCA under regulations to tackle money laundering. Operating without a registration is a criminal offence.

The UK regulator said it is concerned that aside from anti-money laundering not all crypto asset investments are subject to regulation and that the products and services related to crypto assets are so complex that it will be hard for consumers to understand the risks.

The high price volatility of crypto assets combined with valuation issues place consumers at a high risk of losses, the FCA warned, adding “there is no guarantee that crypto assets can be converted back into cash.”

Bitcoin demonstrated its price volatility in the past two days, when it lost more than a quarter of its value.

On 6 Jan., the UK banned the sale of derivatives and exchange traded notes that reference certain crypto assets to retail consumers.

Crypto derivatives are sometimes marketed as tradable securities that derive value from an underlying asset, like an established cryptocurrency, whereas ETNs are unsecured debt traded in a similar way as stocks.

Announcing the change last October, the FCA said retail consumers cannot reliably value these products due to the inherent nature of the underlying assets, extreme volatility and the prevalence of market abuse and financial crime, for example cyber theft, in the secondary market.

With its crypto derivatives ban, the FCA focussed on products and tokens that track market prices and are not specified investments. The direct purchase of established cryptocurrencies remains unaffected.

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