RegulationJun 17 2021

FCA renews warning on cryptoassets as ownership increases

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FCA renews warning on cryptoassets as ownership increases

The Financial Conduct Authority has warned yet again that consumers should “be prepared to lose all their money”, emphasising that cryptoassets are “largely unregulated”, after it reported a rise in ownership of the assets.

Consumer research published by the regulator today (June 17) estimates that 2.3m adults now hold cryptoassets, an increase from 1.9m last year.

It found that approximately 78 per cent of adults have heard of cryptoassets, up from 73 per cent a year ago.

Of those a mere one in ten said they were aware of consumer warnings from the FCA and of these, 43 per cent said they were discouraged from buying crypto.

Furthermore only 38 per cent of crypto users regard them as a gamble, down from 47 per cent last year, while increasing numbers see them as either a complement or alternative to mainstream investments.  

Enthusiasm for cryptoassets is also growing with over half of crypto users saying they have had a positive experience so far and are likely to buy more, rising from 41 per cent to 53 per cent. 

Fewer people regret having bought cryptocurrencies, down from 15 per cent to 11 per cent.

The FCA said holding cryptoassets has become more common and attitudes to them have changed. 

Sheldon Mills, FCA’s executive director, consumers and competition, said: “The research highlights increased interest in cryptoassets among UK customers. The market has continued to grow, and some investors have benefitted as prices have risen. 

“However it is important for customers to understand that because these products are largely unregulated that if something goes wrong they are unlikely to have access to the FSCS or the Financial Ombudsman Service. 

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

The FCA found the level of understanding of cryptocurrencies is declining, suggesting that some people who have heard of crypto may not fully understand what it means.

It said 71 per cent of those asked had correctly identified the definition of cryptocurrency from a list of statements.

Most consumers surveyed recognised that crypto investments were not protected, although 12 per cent of crypto users believed otherwise.  

The research was the FCA’s fourth consumer research publication on cryptoassets ownership, in a sign the regulator is becoming increasingly concerned about the assets.

Earlier this year, the FCA issued a warning to consumers stating they would lose all their money by investing in cryptoassets which "promise high returns".

The City watchdog said the research was part of its strategy to develop thinking on the potential harms and benefits to consumers from cryptoassets and help better understand consumers’ attitudes and patterns of use.

It said it will continue working with HM Treasury and other regulators, including through the UK Cryptoasset Taskforce.  

This latest warning also follows an update earlier this month where the regulator warned that a "significantly high number" of cryptoasset businesses are not meeting money laundering standards

Myron Jobson, personal finance campaigner at Interactive Investor, said: “Cryptocurrency has undergone an image transformation from being viewed as a risky upstart asset to being a credible alternative to mainstream investments.

“Like them or loath them, it is difficult to ignore the meteoric rise in the value of many cryptocurrencies in recent history at a time when traditional assets have been buffeted by Covid-related uncertainty and inflation fears.

“The worry is that the new generation of investors, who didn’t witnessed the dotcom boom and crash at the turn of the millennia or remember the financial crisis of 2007/08, are participating in the latest market craze without truly assessing the risks.  

"Crypto currency should only be a tiny proportion of a portfolio, and the merits of a diversified investment portfolio and avoiding trying to market-time should not be forgotten.”

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