Britain’s financial watchdog has warned investors that they have no regulatory protections to turn to when they buy or sell cryptocurrencies. According to the Financial Conduct Authority, the UK’s Financial Services Compensation Scheme does not cover cryptocurrencies such as Bitcoin and Ethereum. Additionally, crypto investors cannot seek the services of the UK Financial Ombudsman Service:
Unregulated cryptoassets (e.g. Bitcoin, Ether, XRP etc.) are not covered by the Financial Services Compensation Scheme and consumers do not have recourse to the Financial Ombudsman Service.
While the Financial Ombudsman Service settles individual disputes between financial services firms and consumers, the Financial Services Compensation Scheme protects consumers when authorized financial services companies fail for sums of up to £85,000 ($103,000) per eligible person.
Crypto Twitter fights back ‘no intrinsic value’ argument
Consequently, the FCA has urged caution among consumers purchasing crypto assets while stating that cryptocurrencies have no ‘intrinsic value’. This has rubbed some crypto enthusiasts the wrong way. According to eToro market analyst Mati Greenspan, this argument is flawed since fiat currencies which are supposedly backed by the government are also prone to massive depreciation.
Please tell me Mr. Watchdog...
Who will protect UK citizens against the massive depreciation of the British Pound?
GBPUSD is down 30% in the last 5 years. Do you have any consumer protections for that!?! https://t.co/YQrHOUfdB8
— Mati Greenspan (@MatiGreenspan) July 31, 2019
The FCA issued the guidelines in a Final Guidance that it published. This follows a Consultation Paper which the FCA had put out earlier in the year with a view of seeking to provide ‘regulatory clarity for market participants’. The paper was published after the UK Cryptoassets Taskforce had published a report setting out the regulatory and policy approach that the UK should take with regards to cryptocurrencies and blockchain technology.
Time to celebrate?
While the FCA’s Final Guidance may appear relatively harmless since it is merely a warning, the markets watchdog may impose harsher measures in the future. In July, the FCA indicated that it was engaging in consultations with a view of banning the ‘sale, marketing and distribution of derivatives which reference cryptocurrencies to retail consumers. The consultations are still ongoing.
At the time the markets watchdog estimated that the economic benefit to retail consumers after the ban would range between £75 million and £234 million annually. At the same time, the FCA finalized rules which set the leverage limits for CFDs (contract for difference) referencing cryptocurrencies at 2:1.