FCA has concerns about investing in non-fungible tokens (NFTs)
The Financial Conduct Authority (FCA) has reminded Britons of the “very high risks” involved with some crypto asset investments, including non-fungible tokens (NFTs).
The City regulator issued a statement which said it was aware of social media posts promoting investments linked to digital collectibles, and said this generally involves taking very high risks with investors’ money. NFTs could also lead to speculative trading, money laundering, and illegal financing as criminals look for any way to exploit new technologies, the FCA warns.
Additionally, the FCA reminded the general public that NFTs may not be regulated beyond anti-money laundering requirements. This implies that consumer safety is not guaranteed—like it’s often the case in the world of crypto.
According to industry estimates, the NFT market could reach $40 billion by the end of this year and more than $100 billion by 2025. As such, the rising popularity of NFTs has caused concerns among global regulators. Last month, both China and Hong Kong warned of financial risks associated with non-fungible tokens (NFTs) and the metaverse.
Britons were also warned not to fall for scams in which digital crooks use fake celebrity endorsements to promote investments. A greater use of social media websites has been identified as one of the reasons for this, with dummies in particular were more likely to be reliant on Facebook or twitter for investment tips.
UK tightens grip on crypto
In its warning, the FCA also highlighted other concerns including consumer protection, price volatility, product complexity, charges and fees, and marketing materials.
The regulator also warned that NFTs investors are unlikely to have access to the Financial Ombudsman Service or the Financial Services Compensation Scheme if something goes wrong.
Since January 2021, the City watchdog has become the anti-money laundering and counter terrorist financing supervisor of UK’s crypto asset firms. At the time, the FCA kicked off a registration scheme for crypto-asset firms with an initial deadline of one year.
Meanwhile, the UK Government plans to toughen up rules on crypto advertising that could be considered misleading. The Exchequer is proposing to bring the promotion of crypto-assets into the scope of the FCA’s existing oversight, rather than creating a new framework specifically for these products.
Providing the FCA with power to regulate the promotion of certain types of crypto assets, for the first time, would be the quickest way of doing this and stamping out misleading advertising.