A Bitcoin nestled in a bed of black crystals

FCA proposes crackdown on high-risk cryptocurrency investing

Image credit: Executium | Unsplash

The Financial Conduct Authority (FCA) has said it will clamp down on marketing for cryptocurrency firms and other high-risk investments in a bid to lower the number of people investing in potentially loss-making assets.

The price of cryptocurrency started booming near the start of the Covid-19 pandemic leading many people to start investing in the highly volatile currencies.

But the past year has seen wild fluctuations in the price of Bitcoin, which is the most sought-after cryptocurrency. In July the value of one Bitcoin fell as low as £21,000 before rising rapidly to a peak just under £50,000 by the beginning of November. Since then, its value has again plummeted by nearly 50 per cent to just £31,000.

The FCA said it wanted to address concerns about the ease and speed with which people can make high-risk investments by proposing a significant strengthening of its rules on how high-risk financial products are marketed.

Under newly proposed rules, it will ensure firms that approve and communicate financial marketing improve their risk warnings on ads and ban incentives to invest, for example new joiner or refer-a-friend bonuses.

Those looking to make certain high-risk investments would also be asked more robust questions about their knowledge and investment experience, after research found many consumers were investing without being aware of the risks.

The FCA’s draft rules include proposed restrictions on the marketing of cryptoassets, in preparation for the government bringing the promotion of these high-risk investments under the FCA’s remit.

When it does, it plans to categorise qualifying cryptoassets as ‘Restricted Mass Market Investments’, meaning consumers would only be able to respond to cryptoasset financial promotions if they are classed as restricted, high net-worth or sophisticated investors.

Firms issuing such promotions would have to adhere to FCA rules, such as the requirement to be clear, fair and not misleading.

Sarah Pritchard, executive director of markets at the FCA, said: “Too many people are being led to invest in products they don’t understand and which are too risky for them. People need clear, fair information and proper risk warnings if they are to invest with confidence, which is the central aim of our consumer investments strategy.”

A surge in investment scams, particularly online ones since the pandemic in 2020, has prompted the regulator to take action, such as refusing one in five licence applications from consumer investment firms in the year ended March 2021.

In June, Scotland Yard said it had seized a record £114m of Bitcoin as part of an investigation into money laundering offences.

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