Article by Phil
The Financial Conduct Authority have just lifter the ban on crypto advice allowing Chartered Certified Financial Planners to consider the investments.
Whether they will remain to be seen. Crypto trading was initially banned for UK based firms by the FCA back in 2021. But they have just changed their minds and lifted the restrictions. With over 7 million people in the UK already owning crypto this is perhaps not surprising.
According to City Wire almost 70% of Chartered and Certified Financial Planners said that they wouldn’t be introducing crypto into their financial advice. Some specifically said that would exclude any investments clients held in crypto from their overall discussions. Essentially the FCA holds the same view. It continues to say that investors in crypto should expect to lose all their money. Crypto is not and is unlikely to ever be covered by the Financial Services Compensation Scheme (FSCS) protections or the Financial Ombudsman Service (FOS).
But customers have a different view. They don’t seem to be concerned about the risks. According to Wisdom Tree (a crypto company of course) they found that 40% of people would be happy to invest in crypto if their adviser offered it. 25% would hold more than 10% of their investments in crypto. 25% are saving crypto for their retirement and the same percentage to save for a house. Although 75% say that they have no idea about how crypto works.
This is all well and good whilst the crypto “bubble” is intact. The problem will come when the bubble bursts and people lose their money. That’s when they will be calling for protection and accusing the regulator of doing nothing.
As it stands Chartered and Certified Final Planners like us can’t afford to cover the investment risks of crypto. We wouldn’t be able to trade if we had to. Or we would have to increase our advice fees by 50% or more to cover the risks, which is not sustainable. If the FCA wants to promote crypto investments it needs to find a way for crypto companies to cover their own risks.
According to Money Marketing, only 30% of younger people would turn to a certified Financial Planner for advice on crypto. Worryingly 25% would look to social media for “advice”. This is a problem with £7 trillion expected to be inherited over the next 20 years. Where is this money going to end up and will our children have anything left from the assets we leave them?
Crypto taxes
There is also the thorny issue of Capital gains Tax due on crypto trading. HMRC issued over 65,000 letters last year to individuals it suspected of failing to declare crypto gains. Morte than double the year before. This is only set to rise.
Developments in Asset Tokenisation
As part of a further drive to encourage investment innovation, the FCA has announced plans to allow what’s known as asset tokenization. Put simply tokenization is the digital representation of an asset through a ledger. This works for crypto for example, where the asset is digital rather than being physical (i.e. actually existing). It seems that other “illiquid” assets will be able to be represented in this way. These are assets that you can’t cash in or realise their value easily or quickly.
Like crypto these types of “investment” will not be afforded any consumer protection.
ESG investments
Meanwhile although the number of retail investors in ESG (Environmental, Sustainable, Governance) funds has decreased as returns have faltered, this is not the case for Charities. According to Rathbones over 90% of charities say that ESG credentials are an important factor when assessing their investment strategies.
The belief is that ESG principles align with the values and purpose of the charity sector. With over £3.7 billion invested on behalf of charities this represents a significant approach which could well be to the financial detriment of their intended beneficiaries. It is not known whether charities are holding any investments in crypto.
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