There appear to be two very distinct camps with regard to Cryptocurrencies, those that love the freedom from regulation, and those that de-cry it!

Alternatives to regulated currency have been around for many years. There are villages all around the UK whereby a local ‘credit’ system operates quite freely and well. The baker provides the butcher with bread, and the butcher gives the baker ‘credits’, which the baker can then trade back for meat as and when he wants it. Expand this to a whole village, and a ‘cash-free’ credit system is in place.

When the ‘credit’ in question is however available to anyone and nobody actually provides a service, then the credit system becomes more akin to a ‘real currency’, the issue being of course that with such a ‘credit system’ especially on a world-wide web basis, there are no banks or regulators to oversee who is doing what.

It is this freedom to trade without regulation which has seen the much publicized rises and subsequent falls in value, but it is also the reason why the criminal fraternity have latched onto it. No checks for money laundering has a great appeal to those on the dark side of the law.

The FCA has suggested that under the directive of MIFID II that they will not regulate the crypto-currencies themselves, but will potentially regulate derivatives of Cryptocurrencies. A derivative being where the investor gets exposure to the Cryptocurrency, but doesn’t actually hold any. Such regulation is generally to be welcomed, but if one considers that this would in effect be regulation of a ‘bet’ on a non-regulated asset, how many advisers would want to become involved and by default potentially expose clients to such investment strategies?

Financial Services regulation is not perfect, but it is there ostensibly and primarily to protect investors.

How can this ever be possible when the underlying investment is un-regulated and un-monitored?

Caveat emptor, should now perhaps have a new and significant modern-day spin-off; Cryptocurrency emptor!

 

Neil Dainton

Financial Planning Consultant

 

This information and comment is provided strictly for general consideration only. No action must be taken or refrained from based on its contents alone. Crypto Currencies are not regulated by the Financial Conduct Authority