FTX’s customers not protected by UK lifeboat scheme, says FCA

abdelaziz Fathi

The UK financial industry watchdog sounds a warning over the collapsed FTX cryptocurrency exchange, saying Bankman-Fried’s business was outside its regulatory purview.

Sam Bankman-Fried

Moreover, the City watchdog emphasized that anyone who deals with an unauthorized firm like FTX is not protected by the UK lifeboat scheme, and thus cannot complain to the Financial Ombudsman Service. Instead, the FCA offered UK investors only a link to a general financial advice hotline for help.

“Any FTX customers who have financial concerns can receive free, impartial financial guidance from Moneyhelper. In the UK, regulation of cryptoassets is limited to registering of UK-based crypto-asset exchanges for anti-money laundering purposes. As a result, FTX was not authorised, regulated or registered by the FCA,” it said.

Earlier in September, the top financial regulator in the United Kingdom said FTX does not have the necessary license to provide products or services in the country. At the time, the FCA warned that FTX “is targeting people in the UK” who are later unlikely to get their money back in case of a financial loss. That, obviously, came to true.

UK tightens grip on crypto

“We recognise that UK customers of FTX will be concerned by news that it has filed for bankruptcy in the US and has been put into provisional liquidation in the Bahamas. Further details of what this means for FTX customers should be available in the coming days,” the FCA said.

The FCA’s statement against FTX came as the beleaguered cryptocurrency exchange faced a wave of customer withdrawals last week which left it suffering from a severe liquidity crisis. The Bahamas-based crypto asset platform filed for bankruptcy after customers tried to withdraw $8 billion in a few days fearing it will  become insolvent. That was an equivalent of a run on a bank, where a large group of depositors simultaneously withdraw their money at once.

Since January 2020, 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.

However, nearly 70 crypto businesses had withdrawn earlier submitted filings for registration as the country tightens its regulation on the space. By retracting their applications, these firms had to cease operation in the UK, though more than 200 firms are still being assessed by the FCA.

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