The United Kingdom Financial Conduct Authority (“FCA”) has recently imposed new rules and guidelines for cryptoasset exchange providers operating in the United Kingdom (“UK”) that require us to make sure that our customers understand the risks involved with buying cryptoassets. As an asset class, cryptoassets are classified as 'restricted mass market investments' and are therefore considered to be a high-risk investment by the FCA.
Below we will go into some detail on the main risks associated with buying cryptoassets so you are able to use our services to their full extent while remaining well-informed on the reasons why the FCA classifies cryptoassets as a high-risk investment.
CoinCorner is not regulated by the FCA and cryptoassets are not regulated in the UK. Don’t invest unless you’re prepared to lose all the money you invest.
Cryptoasset exchanges facilitate the trading of cryptoassets and often provide custody solutions for customers to store their cryptoassets. It is important to note that when cryptoassets are stored on an exchange, the private keys are generally held by the exchange. This means that the exchange maintains control of the cryptoassets until they are sold or withdrawn from the platform. There are various risks to consider when storing cryptoassets on an online exchange, such as hacking, commingling of funds, insolvency and potential operational outages.
All cryptoassets stored in your CoinCorner wallet are held in custody by us for you, with beneficial ownership remaining with you at all times. None of the cryptoassets stored with us on behalf of our clients are loaned to us, subject to the claims of creditors, or classed as the property of CoinCorner. We refrain from all activities relating to selling, transferring, loaning, hypothecating, or otherwise disposing of cryptoassets held with CoinCorner, unless expressly instructed to do so by you.
Whilst CoinCorner maintains industry best practices across all of its operations including protecting your cryptoassets, these risks should still be considered by all cryptoasset investors, particularly when investing for the first time.
Risk of loss
Something that is essential to understand when investing in cryptoassets is that the value of any cryptoasset can drop to zero. Cryptoasset markets can be highly volatile and price fluctuations based on supply and demand amongst other factors can mean that the value of your holdings may fall just as quickly as they rise. This is something to keep in mind when investing.
The cryptoasset market is largely unregulated, and this puts you at risk of losing money or cryptoassets due to cyber-attacks, financial crime, scams, and third party failure. CoinCorner stores near all customer funds securely offline, and conducts various security checks when processing customer cryptoasset withdrawals, but this is still something to keep in mind when investing in cryptoassets.
Your CoinCorner account can always be the target of cyber-attack or hacking attempts, and scammers like to target people with cryptoassets due to the irreversible nature of certain cryptoasset transactions. It is vital that you ensure the security of your account by following security best practice, enabling two-factor authentication and keeping your login details private. CoinCorner offers custody on behalf of its customers, but unfortunately there is nothing we can do if someone gains unauthorised access to your account by entering the correct login credentials.
If you send your cryptoassets to your own wallets to self-custody, you should remain vigilant for these same threats, making especially sure to never divulge the private keys of your wallets to anyone else.
Your funds are not protected
If you are interested in investing in cryptoassets you should keep in mind that the UK Financial Services Compensation Scheme (“FSCS”) does not protect these investments because cryptoassets are not recognised as a 'specified investment' that the FSCS can protect. Cryptoasset products and services provided by CoinCorner also do not fall under the scope of the Financial Ombudsman Service (“FOS”). The FOS does not consider complaints that are made relating to cryptoasset products or services.
However, it is important to note that the FOS will be able to consider complaints related to products on the CoinCorner platform provided by Modulr FS Limited, including electronic money accounts and debit cards.
Diversifying your investment portfolio is a prudent strategy in relation to mainstream investments, and the same can be said for cryptoasset investments. Allocating too much of your investment portfolio into one asset can be risky. Spreading your investments out across a number of different assets and investments means you're less dependent on one of those assets to perform well.
It's a requirement that any UK-based customer who isn't classed as a 'high net worth investor' or a 'sophisticated investor' doesn't invest more than 10% of their net assets into a 'restricted mass market investment', which cryptoassets are classified as. Diversifying your investment portfolio helps mitigate your exposure to any of the perceived risks with investing in cryptoassets.
A few last points...
Cryptoassets can be a complex and high-risk investment, especially for investment newcomers, so this article should hopefully highlight a few key points for you to consider before deciding to jump in. We recommend that you keep this article in mind, keep up-to-date with the latest cryptoasset news, and assess the risks by conducting your own independent research prior to deciding to invest. Ongoing education and continuing to broaden your understanding and knowledge of this fast-moving asset class is important.
Have any questions? Get in touch!