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UK wealth management trade body urges more action on cryptocurrency

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PIMFA, the trade association for the wealth management and financial advice industry. has welcomed the warning from the FCA to consumers about the risks of investing in crypto assets but is calling for more to be done through the regulation of financial promotions and the upcoming Online Harms Bill.

The FCA warned this morning that cryptoassets are much higher risk investments for smaller investors, as they are unregulated and investors are therefore unlikely to have access to the Financial Ombudsman Service or the Financial Services Compensation Scheme. At the same time, firms that offer access to crypto assets for UK investors will need to be regulated. Investors are encouraged to be diligent about the regulatory status of investment firms and brokers they engage with.

“We fully support the Financial Conduct Authority (FCA) warning consumers about the dangers of high-risk investments that individuals may not fully understand,” said Tim Fassam, Director of Govenrment Relations and Policy. “But we do not think warnings of this nature go far enough to protect consumers from bad actors, particularly during a period of economic hardship that many families may be experiencing due to the continuing COVID pandemic.

“High risk and highly volatile investments”

Fassam said that for some people, desperate for a quick and easy solution to their own financial turmoil, crypto-assets might look attractive but “they are extremely high-risk and highly volatile investments that we would argue only the most sophisticated of investors should consider. These are unregulated investments and not all organisations that offer such investments, do so with the best interests of their customers in mind.”

PIMFA is urging the FCA to take action to more tightly control financial promotions. While it broadly supports the idea that consumers should educate themselves about investments and understand the risks involved, it also argues that the spread of online financial promotions means that consumers are at far greater risk of scams than they have ever been.

Towards the end of last year PIMFA called for financial promotions to become a regulated activity. PIMFA says it strongly believes that the forthcoming Online Harms Bill should include financial services to provide greater protection for consumers. Both of these reforms would provide a far greater level of protection for consumers.

“Without this greater level of protection, we run the risk of financial promotions, particularly online financial promotions, escalating out of control and thousands of potentially vulnerable consumers being exploited,” Fassam said.

Crpyotcurrencies represent a fast moving and still unregulated area of the financial world that is growing in importance and generating masses of publicity. But the same rules apply as for other areas of investment – it is down to the individual investor to carry out due diligence to check the regulatory status of counterparites.

Digital currencies are increasingly being promoted online by firms that are not located in the UK or indeed FCA regulated, but they are still able to reach UK investors via the Internet. Efforts to bring these firms within the UK regulatory orbit could prove challenging.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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