BRITS will get better protection from investing in crypto assets such as Bitcoin, as the financial watchdog cracks down on the sector.
Refer a friend bonuses will be banned under new rules from the Financial Conduct Authority (FCA), as policymakers warned investors should be prepared to “lose all their money” in the high risk market.
Firms marketing cryptocurrencies and other assets will also need to give a cooling-off period for first-time investors from October 8, 2023.
And people will need to be checked for the appropriate level of knowledge and experience before ploughing money into Bitcoin, Ethereum, Dogecoin and other crypto investments.
The FCA said clear risk warnings will need to be in place when firms promote crypto under the new rules.
Crypto investing is volatile and high risk.
Yet, one in 10 adults in the UK now own crypto, with ownership doubling between 2021 and 2022.
Many have regretted “hasty” decisions made with these investments, according to the FCA.
Investors have previously revealed how they lost millions of pounds in crypto, while others have said multi-million losses destroyed their life.
Brits have also been conned out of £329million through crypto scams in 2022, according to data from Action Fraud.
And FTX, which was one of the world’s biggest crypto exchanges, collapsed into bankruptcy in November with its founder charged with fraud in the US.
Experts said they now expect more rules to follow for the crypto sector.
Laith Khalaf, head of investment analysis at platform AJ Bell, said: “This is likely to be the thin end of the wedge for crypto regulation, as financial watchdogs across the globe seek to protect consumers from fraud, sharp sales tactics and misleading information.
“Only this week, Binance has been charged with a number of offences by the SEC, and the crypto world is still reeling in the wake of the FTX scandal.
“The crypto market has often been compared to the wild west, but now the sheriffs are riding into town to clean things up.”
Cryptocurrency markets are a “cauldron of volatility, subject to wild swings and abrupt reversals,” added Myron Jobson, senior personal finance analyst at Interactive Investor.
He said: “Investors require a comprehensive understanding of the volatility, technological complexities, and market uncertainties inherent in cryptocurrency bets.
“Failing to provide accurate and balanced information creates a distorted reality, leading unsuspecting individuals down a dangerous path of financial harm.”
The FCA’s rules follow government legislation to bring crypto promotions into the regulator’s remit.
Additional guidance setting out expectations of firms advertising crypto to UK consumers could be introduced as the FCA consults on prospective changes.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “It is up to people to decide whether they buy crypto.
“But research shows many regret making a hasty decision. Our rules give people the time and the right risk warnings to make an informed choice.
“Consumers should still be aware that crypto remains largely unregulated and high risk.
“Those who invest should be prepared to lose all their money.
“The crypto industry needs to prepare now for this significant change. We are working on additional guidance to help them meet our expectations.”
What are the dangers of investing in crypto?
Many people have bought into cryptocurrencies and decentralised finance tokens hoping to make a quick return.
Investing is not a guaranteed way to make money – you could lose everything.
Furthermore, crypto assets are especially risky because markets are so volatile.
Investors need to understand these risks before parting with their cash.
Some products and cryptocurrency services are very complex to understand with scams in the market rife.
As a rule, you should only invest in things you understand.
In some cases, there is no guarantee that you can convert crypto assets back into cash – it may depend on the demand and supply in the existing market.
Fees and charges may also be higher than with regulated investment products.