Kim Kardashian slated in FCA crypto warningby
FCA chair Charles Randell has warned investors not to take cryptocurrency advice from Kim Kardashian and other social media influencers paid by unverified crypto companies to push unverified – and often fraudulent – products.
The Financial Conduct Authority (FCA) issued a warning against purchasing cryptoassets promoted by social media influences after Kim Kardashian posted a paid advertisement for Ethereum Max cryptocurrency token on Instagram.
In a recent speech FCA chair Charles Randell singled out Kim Kardashian as the most recent offender an emerging trend for celebrities to glamourise cryptocurrencies. In this instance, she touted an unknown, month-old crypto developer to her 250m followers.
Randell’s warning was aimed at steering younger investors away from untested and unregulated assets; including in this case, new crypto tokens that could turn out to be fraudulent.
“It’s unusual to hear the chair of Britain’s financial watchdog dedicate a big chunk of his speech to superstar reality TV queen Kim Kardashian,” said Hargreaves Lansdown senior investment and markets analyst Susannah Streeter. But it shows just how concerned the FCA is about the level of financial promotion of cryptoassets on social media.
With the 10th biggest global reach on social media, Kardashian has one of the biggest audience reaches in history.
“In line with Instagram’s rules, she disclosed that this was an #AD,” said Randell in a speech prepared for the Cambridge International Symposium on Economic Crime. “But she didn’t have to disclose that Ethereum Max [eMax]was a speculative digital token created a month before by unknown developers – one of hundreds of such tokens that fill the crypto-exchanges.”
What is Ethereum Max?
As a form of ERC-20 token, eMax is programmed to run on Ethereum blockchain. It offers token holders 3% of all transactions. However, it released two quadrillion tokens, which have traded for fractions of a penny since the launch in May. eMax trades against ETH on Uniswap, a decentralised exchange that allows anyone to list a token. Little more is known about eMax, with no whitepapers or background info provided, it appears to be primarily a marketing campaign.
“Social media influencers are routinely paid by scammers to help them pump and dump new tokens on the back of pure speculation,” added Randell. “Some influencers promote coins that turn out simply not to exist at all.”
However, many consumers buying into the promotion are unaware that cryptocurrencies offer zero financial protection for investors, who will not have access to the Financial Services Compensation Scheme or help from the FCA if it turns out to be fraudulent. “If you buy them, you should be prepared to lose all your money,” Randell warned.
“The hype around them generates a powerful fear of missing out from some consumers who may have little understanding of their risks,” he continued. “There is no shortage of stories of people who have lost savings by being lured into the crypto bubble with delusions of quick riches, sometimes after listening to their favourite influencers, ready to betray their fans’ trust for a fee.”
FCA regulation in crypto’s future?
Randell also criticised the cryptocurrency industry, implying that it might soon be put under greater regulatory scrutiny. He also signalled that the FCA intended to bring cryptocurrency tokens fully under its scope in the future.
“One thing is clear,” Randell continued. “Because of the decentralised way that these speculative tokens are created, any effective system of regulation would require a business seeking registration or authorisation with the FCA to bring itself firmly within our reach, with people and resources that we could access in order to supervise and enforce our requirements. We are not going to award FCA registration or authorisation to businesses which won’t explain basic issues, such as who is responsible for key functions or how they are organised. That would be token regulation in the worst sense.”
The FCA has urged consumers to undertake thorough research before investing in any cryptocurrency – even Bitcoin. He also added that the FCA needs to better inform consumers that crypto is not regulated and comes without any financial protection, making it a poor investment.
What should we take from this?
“The FCA is singing from the same song sheet as many other international regulators,” said Streeter. “It sees investing in cryptocurrencies as extremely high risk.”
The watchdog had already warn investors they risked losing all their money if they indulge in cryptocurrency trading. It’s worried that too many financially vulnerable people are being lured into get rich quick schemes, with 14% getting into debt to speculate in cryptoassets. If it brings cryptocurrencies into the regulatory sphere, however, the FCA risks lending more legitimacy to the currencies.
Now the UK authority appears to be throwing its weight behind recommendations made by the influential Basel committee which brings together banking regulators from around the world. “If banks and other regulated financial institutions dabble in crypto, the committee is considering making them put aside enough capital to cover 100% of potential losses,” said Streeter. “Giving speculative tokens a high risk price tag is likely to make cryptocurrency dealing and investment very expensive and could limit the number of new institutional entrants into the crypto world.
“It's likely lower financial buffers would be needed for stable coins, which are seen as less volatile as they are pegged to currencies like the dollar. It is clear the FCA wants to push the financial industry towards these digital assets, seeing them as a useful way to improve the payments market away from the crypto Wild West.’’
The FCA has repeatedly warned about the risk of holding speculative tokens. However, 2.3m Britons currently hold these types of cryptoassets. Worryingly, 14% of them also use credit to purchase them, thereby increasing their exposure to potential losses.