Major rule changes proposed for crypto as Brits lose £329m a year in scams

01 February 2023 , 17:21

1055 0

BRITS investing in cryptocurrency could be given extra protection thanks to new proposals by the government.

It comes as Brits lost £329million in crypto scams in 2022.

The Government has announced plans to protect Brits from crypto scams

Ministers are looking to regulate the cryptocurrency sector to help consumers avoid risks.

Cryptoassets – known as "crypto" – are relatively new, diverse and constantly evolving assets that have a range of potential benefits, as well as risks.

In the year to December 2022, reported losses in crypto scams rose by 72% - resulting in £329million lost, according to Action Fraud

From tongue scraping to saying no, here are 12 health trends to try in 2023

Full details are set to be published on Wednesday next week but the government is aiming to manage the industry.

In a statement, the Treasury said its new “robust approach” in regulating the sector will mitigate “the most significant risks”, but also allow the UK to tap into the advantages of crypto technologies.

The proposals include laying down rules on promotions, which have to be clear and not misleading.

It'd also implement new regulations to prevent so-called pump and dump, which is when an individual artificially inflates the value of a crypto asset before selling it.

The move comes after a series of high-profile global failures have rocked the relatively new sector.

For example, FTX, which was one of the world's biggest crypto exchanges, collapsed into bankruptcy in November and its founder has been charged with fraud in the US.

The Treasury said it “will seek to regulate a broad suite of cryptoasset activities”, in a way that is consistent with how it approached traditional finance.

Crypto trading venues will be responsible for “defining the detailed content requirements for admission and disclosure documents”.

This, the Treasury said, would ensure that “crypto exchanges have fair and robust standards”.

It also said that it would strengthen rules around financial intermediaries and custodians.

Spectacular New Year fireworks light up London sky as huge crowds celebrate across UK for first time in three years

“The consultation will seek views on improving market integrity and consumer protection by setting out a proposed crypto market abuse regime,” the Treasury said.

The full details of the consultation will be published on Wednesday morning, the Treasury said.

The consultation will run until April 30 this year.

Laith Khalaf, head of investment analysis at AJ Bell, said it was "inevitable" that crypto would come under increased scrutiny.

Although, Mr Khalaf pointed out that the proposed regulations are "not a silver bullet that will guarantee absolutely no consumer harm stems from the crypto industry".

He said: "They do provide a more robust regulatory framework that is several steps closer to that applied to more mainstream financial activities."

He also added that it is "notable" that the Government is not shutting the door on the industry.

But is instead keen to encourage technological innovation within regulatory boundaries.

Mr Khalaf said: "Crypto is also becoming more widespread, with around 10% of the UK population having bought cryptocurrency, according to YouGov, so there is a heightened risk that consumers will buy in without fully understanding the risks.

“The widening pool of crypto holders makes consumer regulation more of a priority for the government."

The long-term adoption of cryptocurrencies by businesses, consumers and investors is still highly uncertain, Mr Khalaf added.

He said: "Most importantly, greater regulation isn’t going to make a dent in the price risk assumed by crypto holders, and the golden rule of buying cryptocurrency remains to only do so with money you are willing to lose in its entirety.”

What are the dangers of investing in crypto?

Buying cryptocurrencies and decentralised finance tokens is a risky business.

Investing is not a guaranteed way to make money, so make sure you know the risks and can afford to lose the money.

Cryptocurrencies and decentralised finance tokens are also extremely volatile, so your cash can go down as well as up in the blink of an eye.

Some products and cryptocurrency services are very complex to understand.

You should only invest in things you understand.

Cryptocurrencies are a speculative investment, with limited track records and a lack of reliable basis.

There is no guarantee that you can convert crypto assets back into cash, as it may depend on the demand and supply in the existing market.

Fees and charges may also be higher than with regulated investment products.

We know that crypto firms may also overstate the returns or understate the risks. Be careful.

How is crypto currently regulated?

Cryptocurrency firms are not regulated in the way that other financial firms are.

This means that consumers won't have any protection if things go wrong.

For example, you won’t be able to take a complaint to the Financial Ombudsman Service, as you would usually.

Investing is always a risk but investing in cryptocurrency is an even higher risk as they are very volatile.

UK Crypto asset businesses must register with the Financial Conduct Authority - and you can check to see if they are on the Financial Services Register or if they are on a list of firms with temporary registration.

There is also a list of businesses not registered. If they are on this list then they may be operating illegally.

Even if they are on the list the city watchdog is not responsible for regulating them and they don't have any power over how they conduct business with customers.

Back in 2021, the Financial Conduct Authority warned that Brits risk losing ALL of their money if they invest in cryptocurrencies.

The financial regulator said people need to be aware of the risks, ranging from prices going up and down suddenly, to the lack of protection if something goes wrong.

People considering investing in Bitcoin or shares and stocks have also been previously warned over "risky" tips being shared on TikTok.