They have put it nice and clear for you.
As with all high-risk, speculative investments, consumers should make sure they understand what they’re investing in, the risks associated with investing, and any regulatory protections that apply.
For Cryptoasset-related investments, consumers are unlikely to have access to the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS) if something goes wrong.
Consumers should be wary if they’re contacted out of the blue, pressured to invest quickly or promised returns that sound too good to be true.
The FCA’s concerns about high-return investments based on cryptoassets include:
- Consumer protection: Some investments advertising high returns based on Cryptoassets may not be subject to regulation beyond anti-money laundering requirements.
- Price volatility: Significant price volatility in Cryptoassets, combined with the inherent difficulties of valuing Cryptoassets reliably, places consumers at a high risk of losses.
- Product complexity: The complexity of some products and services relating to Cryptoassets can make it hard for consumers to understand the risks. There is no guarantee that Cryptoassets can be converted back into cash. Converting a Cryptoasset back to cash depends on demand and supply existing in the market.
- Charges and fees: Consumers should consider the impact of fees and charges on their investment which may be more than those for regulated investment products.
- Marketing materials: Firms may overstate the returns of products or understate the risks involved.
Consumers should be aware of the risks and fully consider whether investing in high-return investments based on cryptoassets is appropriate for them. They should check and carefully consider the cryptoasset business involved.
What to do:
Step 1: Consumers should check if the firm they’re using is on the Financial Services Register or list of firms with Temporary Registration (Note: appearing on the Temporary Registration Register does not mean that the FCA has assessed them as fit and proper, nor that the FCA has determined their application for the purposes of the Money Laundering Regulations).
Step 2: If they’re not, consumers should ask the firm whether they are entitled to carry on business without being registered with the FCA.
Step 3: If they’re not, the FCA suggests that consumers should withdraw their Cryptoassets and/or money. This is because the firm is operating illegally if it has not ceased trading by 9 January 2021.
New speech from commissioner Hester M. Peirce, present some challenges ahead clearly.
Crypto, a way to hold easily and seamlessly transfer value, has made that principle even more powerful than ever before in history; people are able to enter into transactions with others across the world without an intermediary.
Regulators, however, are used to dealing with intermediaries, because they are easy to grab hold of and regulate. So crypto poses new challenges. Those challenges are only growing as crypto evolves. The SEC is wrestling with issues such as whether digital assets are securities, how registered entities can custody digital assets in compliance with our rules, and whether regulated investment products holding bitcoin can meet regulation standards. The explosion of decentralized finance, or “DeFi,” applications designed to displace regulated entities such as exchanges and broker-dealers will pose thorny questions and decisions for the SEC in the coming years.
As this technology gains adoption outside and now inside the legacy financial system, we should figure out a way to embrace the personal liberty principles undergirding it. If we were instead to steamroll the technology’s liberty-enhancing features under the weight of regulation, we would lose a lot of the power of the new technology to afford opportunities to people whose autonomy has previously been curbed by, for example, limited access to the traditional financial system, geographic location, social standing, or subjection to a repressive government.
The Commission has been building the Consolidated Audit Trail (“CAT”) so that it can track all equities and options orders as they wend their way through the markets. As with many other ideas that give me concern from a liberty standpoint, the objective is unobjectionable—affording regulators easy and holistic insight into what is happening in the markets. Nevertheless, the price is too high. Regulators, without having any grounds for suspicion, will be able to watch every move of every person who trades in our markets. We would not find it pleasant or appropriate for a government minder to monitor our purchases at a farmers’ market, and it is no more pleasant or appropriate in an equity market. The CAT is an example of a regulatory project that got unmoored from liberty concerns as everyone was focused on very real technical concerns.
Maybe is it time for stablecoin/s on stock/s in order to avoid the CAT? your call
Tradenet Capital Markets Ltd. for offering and selling security-based swaps to over 5,000 retail investors without registration and for failing to transact its swaps on a registered national exchange.
According to the SEC’s order, Tradenet sold investors packages of materials that claimed to be for the purpose of educating investors about day trading but also paid investors a portion of net profits from simulated trades conducted in a funded trading account provided as part of the packages. As set forth in the order, Tradenet charged from $500 to $9,000 for the educational packages that included the simulated trading accounts. According to the order, investors whose portfolios increased in value received payouts equal to a percentage of the simulated net profits, but if the value of the portfolio decreased by a certain amount, the funded trading account was closed. The SEC’s order finds that the contracts to provide funded trading accounts were security-based swaps under the U.S. federal securities laws. The SEC’s order further finds that no registration statement had been filed for the swaps, and that the swaps were not sold through a national securities exchange.
Tradenet provided its customers “Day Trader Education Packages” that included a simulated “funded account” in which they could “trade” securities. The participants received a portion of the upside, and their downside was capped as their accounts were closed if they fell below predetermined thresholds. Some purchasers of these packages appear to have voluntarily purchased successive packages, and participants appear to have transacted with Tradenet voluntarily and with clear information about the terms of the deal. While Tradenet’s product offering had an educational component, it was primarily about the simulated “funded account,” which could not have been offered to U.S. retail investors under the existing rules
However, the some believe that there is room in our regulatory framework for creative investor education programs that give investors the opportunity to simulate trading in various financial products and assembling an investment portfolio. Gamification of educational experiences can promote learning, and the use of awards or prizes—even cash prizes—can provide incentives to take the game seriously and thus increase the educational value of the experience.
Firms, schools, and entrepreneurs who are interested in offering genuine learning opportunities to investors through simulated trading experiences with financial incentives but are concerned that their design may raise issues under the securities laws should engage with the Commission to explore how they could offer it in a manner consistent with the rules
The FCA is proposing that when a customer renews their home or motor insurance policy, they pay no more than they would if they were new to their provider through the same sales channel. For example, if the customer bought the policy online, they would be charged the same price as a new customer buying online. Firms would be free to set new business prices, but they would be prevented from gradually increasing the renewal price to consumers over time (known as ‘price walking’) other than in line with changes in customers’ risk. For existing consumers, their renewal price would be no higher than the equivalent new business price.
Firms use complex and opaque pricing practices that allow them to raise prices for consumers that renew with them year on year. While some people shop around for a deal, many others are losing out for being loyal. Firms target price increases on consumers who are less likely to switch and use practices that make it harder for people to leave. At the same time, firms do not always offer regular switchers their lowest prices. The FCA identified 6 million policyholders were paying high or very high margins in 2018. If they paid the average for their risk, they would have saved £1.2 billion. Some of this is due to harmful pricing practices, which the FCA’s proposals aim to tackle.
In the long-term, the proposed FCA remedies are designed to improve competition. This should lead to lower costs for supplying insurance, and ultimately lower the prices paid by consumers on average. The FCA estimates that its proposals will save consumers £3.7 billion over 10 years.
There is one true rule when it comes to insurance, if it is too complex, you will be “BEEP” hardly. You don’t want to end up paying for nothing, it is the opposite of fun.
According to a new research, the scale of payments and transfers to foreign countries from the UK is very large. An estimated $26.8bn was transferred in 2017 alone as remittances (transfers by non-UK nationals to their home country).
Approximately £4bn was estimated to be ‘lost’ in hidden charges paid by small and medium sized enterprises in 2015. The new regulations are designed to increase the transparency of costs, but they do not impose changes in underlying market practices, such as in costs structures or how long an exchange rate offer remains available to the customer.
A particular issue in the retail FX market is the complexity and amount of information that a consumer needs to understand when deciding whether or not to transact with a particular firm. For example, firms can operate different transaction cost structures, use different exchange rates and can deduct costs from the monetary amount to be converted or from the amount of the new currency to be received. In general, attempts to improve consumers’ abilities to compare and contrast different providers in the financial services sector, especially where information is complex and could be presented in diverse ways, often involves standardisation or defining the minimum amount of information that needs to be presented at the point of sale.
Previous research has shown that providing more information about financial products doesn’t necessarily help consumers make better decisions, so it is vital to test the efficacy of such interventions.
According to the research, on average, people are more likely to shop around where no registration is required and on average, people are more likely to choose the highest received amount where the market exchange rate is the same across all offers (stable). The timestamp and statement have no significant effect.
The research results suggest that people make better choices when they can compare offers across providers that are fixed during the time they are searching. However, in line with previous research, adding further information in the form of a timestamp and disclosure about exchange rates changing did not improve participants’ choices.
According to our understanding:
God is in details. If there is too much information, you should not be intimidated, in some cases it can also be fun, and you may enjoy and benefit from the process. It may be just like assembling a puzzle.
Don’t be afraid to ask, answers can assist you, we are here to assist you, it is your call whether or not to use the information provided, and it is better to keep the information available out there. Confusing or not, people may need more time to adapt to the extra information provided.
BigTech firms are large technology companies with extensive established customer networks. Some BigTech firms use their platforms to facilitate provision of financial services.
The below as been quoted from Steven Maijoor (Chair of the European Securities and Markets Authority (ESMA)) speech:
BigTechs have the potential to win market share in financial services because they enjoy
competitive advantages such as economies of scale, vast customer networks, access to cheap funding and proprietary data that powers personalised services.
BigTech firms may use data to offer tailored services. This is a familiar idea from other lines of business. For instance, you may receive online advertising for a holiday destination based on your searches for local hotels, your social media posts or recent holiday-related online purchases.
A risk, however, is that even if competition in certain financial services increases at first, it may later suffer as BigTechs grow market share. Switching provider may be less convenient if financial services are integrated with other lines of business. In other words, BigTechs may, after successful entry and growth, achieve a ‘gatekeeping’ position. And they may use personal data to extract more surplus from consumers through segmented pricing.
Privacy and data rights are a major concern, especially in light of the apparently illicit use of personal data by some firms in recent years. A single firm may be able to learn and infer a huge amount about people’s lives and personal circumstances. Integrating financial services into online platforms increases even further the sensitivity of such information.
Although financial inclusion may be a benefit in some cases, there is a risk of exclusion in others. For example, reduced information asymmetry between provider and client for products such as insurance or credit may reduce prices for some consumers, but exclude others altogether. And people less inclined to use digital technology may lose out. Finally, a business model operating across economic sectors may raise concentration risk. An operational incident that originates in one platform service offered by a BigTech firm could have a large impact on other lines of business, including financial services.
What phoenixing is?
Phoenixing is a common term used to describe the practice of closing a firm and that firm re-appearing under a new guise to avoid liabilities arising from the old firm. Each time this happens, the insolvent company’s assets, but not its debts, are transferred to a new, similar ‘phoenix’ company.
The insolvent company then ceases to trade and might enter into formal insolvency proceedings (liquidation, administration or administrative receivership) or be dissolved.
What the FCA is doing to prevent financial adviser phoenixing?
It has a broad programme of work under way to tackle the harm caused to consumers when regulated financial advice firms and individuals seek to avoid liabilities to consumers that have arisen because of the poor advice they have given. As part of thier ongoing supervision of firms and of individuals controlling firms, they actively look out for and act on, situations where a FCA regulated firm or individual is seeking to avoid their liabilities arising from awards made by the Financial Ombudsman Service or are deliberately seeking to avoid paying in the future because of their poor advice or practices.
Where the FCA finds individuals who deliberately avoided their responsibilities and not complied with previous awards made against their firms, it will question the fitness and propriety of these individuals and take necessary steps against them so that they don’t cause further harm to consumers.
What you can do to protect yourself from poor financial advice or a potential phoenixed firm?
Research the financial advice firm/financial adviser
- Check on the Financial Services register whether the firm or individual you are dealing with is regulated by the FCA. If you deal with a firm (or individual) that is not regulated you may not be covered by the Financial Ombudsman Service or the FSCS.
- Consult the FCA Warning List to check if the firm is known to be operating without FCA authorisation and for any FCA Enforcement decisions/actions against the firm or adviser.
- Check the Financial Ombudsman Service website for the firm’s record of complaints to help inform your decision on whether you wish to receive investment advice from the firm.
Don’t be the next victim, you can take control of your own destiny. It is all up to you, some can assist you the get it right.
Lesson learned, and actions are taking. The FCA is introducing the restriction without consultation, using its product intervention powers. The restriction will come into force on the 1 January 2020 and last for 12 months while the FCA consults on making permanent rules.
The term mini-bond refers to a range of investments. The ban announced today will apply to more complex and opaque arrangements where the funds raised are used to lend to a third party, invest in other companies or purchase or develop properties. There are various exemptions including for listed mini-bonds, companies which raise funds for their own activities (other than the ones above) or to fund a single UK property investment.
The FCA has limited powers over the, usually unauthorised, issuers of speculative mini-bonds but can take action when an authorised firm approves or communicates a financial promotion, or directly advises on or sells, these products. Alongside this activity, there is evidence of a growing incidence of promotions which are frauds or scams and involve no attempt to meet financial promotion rules. The marketing ban does not apply to such frauds and scams because they are illegal in any event.
If you are Crypto enthusiast, pro Crypto you can also be optimistic from the following speech giving by Commissioner Hester M. Peirce:
I am concerned about how the SEC has regulated this space, because I believe our lack of a workable regulatory framework has hindered innovation and growth. The only guidance out of the SEC is a parade of enforcement actions and a set of staff guidance documents and staff no-action letters. For example, the SEC’s web page “Spotlight on Initial Coin Offerings (ICOs),” has an “ICO Updates” section that is headlined by enforcement actions brought by the Commission. Only when you click through to “More” do you see other materials. Of particular concern is that these enforcement actions and guidance pieces, taken together, offer no clear path for a functioning token network to emerge. Instead, I support creating a non-exclusive safe harbor period within which a token network could blossom without the full weight of the securities laws crushing it before it becomes functional. By allowing legitimate projects to get their tokens into the hands of a broad set of developers and network users without fear of enforcement, we also would allow the SEC’s Enforcement Division to focus its resources on the fraudulent actors in the realm of crypto offerings.
In a different paragraph she shared the following:
The terms of a settled enforcement action, for example, may turn on considerations that will not be obviously determinative to someone reading the facts set forth in the settlement order. I am thinking of one recent enforcement action that generated quite a buzz in the crypto world because some thought its penalty was too low relative to the amount raised in the offering. Yet, there were some underlying facts that might have argued for the opposite conclusion—that the penalty was too high.