FCA Raises Major Concerns about Investing in Non-Fungible Tokens (NFTs)

Richard M. May 13, 2022 3 minute read

The FCA highlighted the significant risk associated with the Non-Fungible Tokens (NFTS) which may not be regulated beyond AML laws with an aim to ensure Britain’s safety.

With criminals becoming smarter in exploiting newer technologies, The Financial Conduct Authority (FCA) has issued a warning emphasising the high risks involved with dealing with investors’ money linked to the crypto assets investments by indicating that Non-Fungible Tokens (NFTS) may lead to speculative trading, money laundering and illegal financing.

As the NFT market is progressing at a high rate as expected to reach $40 billion at the end of the year, major considerations have been raised regarding its non-compliance with Anti-Money Laundering (AML) regulations causing consumer safety to be at a halt. In accordance with this, China and Hong Kong both have warned about the financial risks linked with NFTs and the metaverse in the past month.

Furthermore, Britons were cautioned to not fall to scams used by digital crooks in prompting investments by utilizing fake celebrity endorsements depicted massively through social media posts. Exploiting major websites have been indicated as a major reason behind this as per the City Regulator as dupes were more likely to be reliant on Facebook or Twitter for investment tips.

Additional concerns were also raised by FCA on matters of consumer protection, price volatility, product intricacy, charges and expenses, and trade materials. NFT investors are further notified about the prohibition of accessing the Financial Ombudsman Service or the Financial Services Compensation Scheme if any disruption occurs.

A registration scheme for crypto-asset firms was kicked off by FCA while initiating a one-year deadline in January 2021, at the time in which the City watchdog was designated as the official anti-money laundering and terrorist financing supervisor for these corresponding firms.

Meanwhile, the UK government is implying plans to put restrictions on crypto advertising through tough rules. The Exchequer is proposing to bring the attention towards crypto promotions into the scope of FCA’s existing oversight, rather than creating a framework, especially for these products. Providing the FCA with the power to regulate the promotion of various crypto assets would be the first and quickest way for stamping out misleading advertising.