BaFin warns investors on social-media investment tips

abdelaziz Fathi

Germany’s federal financial supervisory authority (BaFin) today warned cryptocurrency investors about the risks of following investment tips made on social-media platforms.

The financial regulator has also delivered a stern warning against unchecked traders that are using flashy social media profiles to trick inexperienced persons into thinking they can trade online and make thousands in no time.

These warnings were in response to a rise in unregulated trading signals on online forums, and a concern that retail investors are not aware of the risks associated with following such tips, BaFin said.

While these bogus profiles advertise get-rich-quick schemes, they do not even have a website and operate solely on social media channels, including Instagram, Facebook, or WhatsApp.

These traders, however, do not have the necessary accreditation or qualifications to offer these services, though they promise very lucrative and guaranteed returns. All fake promises tend to stop after victims have invested money and got their first round of profits.

Tips garnered online by young investors via social media may be inaccurate, the watchdog warns, while advice from financial celebrities can come with a good deal of risk when deciding where to park their money.

“In addition, many of the investment tips circulating on social media about crypto assets and other financial products are unreliable. They may even be false, misleading, or fictitious. Digital, lucrative and trendy: Crypto assets now also have this image among private investors. However, they should not be blinded by promises of high returns and fantastic-sounding investment tips for crypto assets. Be careful with recommendations on social media,” the statement further reads.

BaFin faces challenges when trying to police crypto platforms

The regulator added that investment recommendations had to be produced in an objective and transparent way, so that investors could distinguish fact from opinions.

The watchdog warned those giving investment advice on social media that they may face fines or other enforcement actions if they broke the rules.

To prevent such practices, BaFin issued several guidelines that encourage potential investors to be wary of promises of disproportionate returns. A guaranteed investment with a high return that considerably exceeds the market return is often too good to be true, it says.

In an attempt to keep up with the rise of the crypto market, including the number of trading platforms and users, BaFin has been adamant in its warnings toward investors, elaborating on the potential risks associated with the booming industry.

Crypto firms operating in Germany have to apply for a license to the nation’s financial watchdog BaFin since the end of 2019 when the new Anti-Money Laundering (AML) regulations came into effect. Although derivatives referencing cryptoassets would not fall under this suggestion, they remain subject to ESMA’s current restriction and any future proposals by the BaFin regarding the sale of these instruments to retail investors.

 

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