Article by Mhairi
Financial Consultants are pleased that the Government has just published new draft legislation which will bring trading in cryptocurrency in the UK under the control of the Financial Conduct Authority (FCA).
That means that all types of crypto firms in the UK will need to be authorised and regulated, just like we are. They will also need to pay the relevant fees for regulation to the FCA. This should bring some element of order and control to the market. At least customers will know that regulated firms of Financial Consultants have passed the appropriate checks before being allowed to trade.
What is not clear is whether investments in cryptocurrency will fall under the protection of the Financial Services Compensation Scheme (FSCS). I would hope not as this would add untold extra costs on ordinary Financial Consultants firms who do not deal or advise or crypto assets.
1 in 10 currently own crypto
In the UK 12% of the population currently own crypto. The average holding or investment is now £1,800. This remains a high-risk investment. The FCA advice is still to assume that any investments in crypto may be lost at any moment.
Most financial advisers don’t like crypto either. Research by Opinium found that only 5% of advisers thought crypto represented an investment opportunity.
- 34% didn’t think it was a safe investment.
- 42% didn’t trust crypto.
- Overall, 66% said they would never recommend it to clients.
- 50% thought that it was open to fraud and scams.
- Most were concerned about the volatile nature of the market and dramatic price swings.
One thing the FCA is likely to change are rules against using credit to buy cryptocurrency-based investments. You are not allowed to borrow to make other kinds of equity investment and its likely crypto will follow suit.
Beware of online crypto scams
The FCA remain concerned about online scams. Especially those involving crypto. Not surprising since two thirds of investment scams currently involve crypto. They also remain concerned about so called fin influencers online and have called on financial services firms to provide more online education about investments and risk. They were also critical of Facebook who are taking an average of six weeks to take down crypto scam adverts and posts which are causing real harm to customers.
This is a major issue given that over £20 billion a year in the UK is spent on advertising on either Facebook or Google.
As we always say please be careful online.
Investment fraud also a concern
Financial consultants are also warning clients to be vigilant when it comes to online investment fraud. According to Action Fraud almost £650 million was lost last year. That was a 13% increase on the year before, despite the number of reports going down. 55- to 65-year-olds are most at risk.
Social media is still the most common source of fraud, especially WhatsApp, Facebook and Instagram.
However, there are warnings about clone fraud, which is on the increase. We’ve looked at this before. It’s where fraudsters create fake websites which have very similar domain names to well-known brands. There were almost 2,000 incidence of clone scams last year involving fake investment firms.
Banks back in online investments market
Nat West has announced that it is launching an online investment service for its customers. You may recall that back I 2012 all the major Banks pulled out of the investment market on the back of the Retail Distribution Review which required all financial advisers to re-qualify. Now they are moving back into advice as the FCA looks to soften the advice boundary to enable more people ton access advice.
The Nat West will be a restricted advice firm only offering clients their own investments. This will be made clear to customers. They will not be offering an ongoing advice service and will only make a small charge for the initial advice. It should help customers to get more out of their money. Bearing in mind £280 billion is currently sat in accounts paying zero interest according to the Bank of England.
Mortgage regulation changes on horizon
The FCA are consulting on potential changes to mortgage regulations in a bid to make things easier for customers. This is in part an extension to the Consumer Duty changes last year. Aimed at putting customers first. Some of the things being looked at will make it easier to switch mortgage providers, reduce mortgage balances and change mortgage terms.
You would think these things would be easy to do. But currently they aren’t because Financial Consultants are required to provide mortgage advice which delays the process and adds significant cost.
