Consumers warned about investments promising high returns based on cryptoassets

Consumers are being warned about the risks of investing in schemes promising high returns based around cryptoassets.

Investing in cryptoassets, or investments and lending linked to them, generally involves taking very high risks with investors’ money, the Financial Conduct Authority (FCA) said.

The complexity of products can make it hard for people to understand the risks, and significant price volatility places consumers at a high risk of losses, it cautioned.

Firms may overstate the returns on products or understate the risks involved, the regulator added.

If consumers invest in these types of product, they should be prepared to lose all their money, the FCA warned.

Some investments advertising high returns based on cryptoassets may not be subject to regulation beyond anti-money laundering requirements.

The FCA said that 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.

Laith Khalaf, a financial analyst at AJ Bell, said: “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.

We warn consumers of the risks of investments advertising high returns based on cryptoassets https://t.co/4Ve8knWgYY #cryptoassets pic.twitter.com/uCop8Ef77s

— Financial Conduct Authority (@TheFCA) January 11, 2021

“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 cryptocurrencies and should consider any marketing material with an extremely critical eye.

“They should also make sure any firm they are dealing with is regulated, or at least has temporary permissions from the regulator.”

The FCA said people should be wary if they are contacted out of the blue, pressured to invest quickly or promised returns that sound too good to be true.

Firms offering such products should make sure they comply with all relevant regulatory requirements and are authorised by the FCA where this is required.

Since January 10, all UK cryptoasset firms must be registered with the FCA under regulations to tackle money laundering.

The regulator said consumers should check if the firm they are using is on the financial services register at fca.org.uk/firms/financial-services-register or list of firms with temporary registration at https://register.fca.org.uk/servlet/servlet.FileDownload?file=0154G0000062BtF.

If they are not, consumers should ask the firm whether they are entitled to carry on business without being registered with the FCA.

If it is not, the FCA suggests consumers should withdraw their cryptoassets and/or money.