As part of its ongoing work to investigate and understand the UK cryptoassets sector the FCA has published the findings of two pieces of complementary consumer research on cryptoassets.

By Sam Maxson and Stuart Davis

Following the publication of the UK Cryptoassets Taskforce final report in October 2018, the FCA has engaged in a series of focused pieces of work relating to the UK cryptoassets sector.

This work includes the headline public consultations that were announced in the Taskforce final report — such as the FCA Cryptoassets Perimeter Guidance Consultation (published in January 2019 and open for responses until 5 April 2019) and the proposed FCA consultation on a potential ban on the sale of certain cryptoasset derivatives to retail investors (expected later this year) — as well as more “behind the scenes” work that the FCA is conducting to improve its evidence base and understanding of the cryptoassets sector.

The regulator’s recent research on consumer attitudes and awareness of cryptoassets falls into the latter category, and reveals some interesting findings in relation to the attitudes, understanding, motivations, and beliefs of UK consumers towards cryptoassets. The implications of these findings could have an impact on the policy decisions taken by the FCA in relation to the regulation of cryptoassets in the UK.

The FCA commissioned two complementary pieces of research:

  1. A report on how and why consumers buy cryptoassets, prepared on the basis of qualitative interviews with 31 cryptoassets consumers.
  2. A survey of a nationally representative sample of 2,132 UK consumers about their awareness, understanding, and purchasing habits relating to cryptoassets.

The FCA’s Key Findings

  • Fast-track to easy wealth

The FCA found that consumers purchasing cryptoassets are often looking for ways to “get rich quick”. The regulator noted that many of the consumers interviewed perceived cryptoassets as a shortcut to easy money and wealth, and that they were often motivated to invest by external influences such as social media.

  • Lack of understanding

The research provides evidence to suggest that consumers overestimate their knowledge of cryptoassets. For example, several people spoke of wanting to buy a “whole coin” (unaware that it was possible to buy fractions of coins), whilst others appeared to believe that they were investing in tangible assets because of some of the terminology associated with cryptoassets (such as “mining” and “coin”).

  • Risky behaviour

The FCA noted that risky behaviour appears to be associated with cryptoassets, including:

    • A tendency to be overly reliant on the advice of a small number of influential recommendations, coupled with a general distrust of mainstream media or official sources of information
    • Consumers often not performing research or due diligence prior to purchasing cryptoassets
    • Characterisation of the generally high-risk nature of cryptoassets (resulting from, among other things, extreme price volatility) as forming part of the attraction of investing in cryptoassets
    • A lack of investment strategy in relation to cryptoassets — in particular, consumers having no strategy for selling cryptoassets or even an awareness of the appropriate circumstances that might motivate them to exit an investment
  • Overstatement of harm

The research also contained some findings that potentially challenge the perceived level of consumer harm associated with cryptoassets in the UK. In particular, the FCA estimates that only 3% of people surveyed had ever bought cryptoassets and found that consumers generally do not spend large amounts on cryptoassets (around half the time £200 or less), typically using their own money to do so out of disposable income (rather than borrowing money).

The FCA’s key findings are particularly interesting because whilst they do provide evidence of the potential risk of harm to consumers posed by cryptoassets, they also demonstrate acknowledgement from the FCA that the overall scale of harm in the UK might not be as great as initially perceived. Whilst the findings from this research are unlikely to have a dramatic impact on the overall direction of travel of legal and regulatory policymaking in relation to cryptoassets in the UK, they will play a role in helping the FCA to calibrate some of its forthcoming proposals (such as the potential ban on the sale of certain cryptoasset derivatives to retail investors). Further research and similar work from the FCA should also be expected, as the regulator has been clear that it is working to expand the credible base of evidence in relation to the UK cryptoassets sector from which it may take decisions about possible actions in this space to address potential risks to consumer harm and market integrity more generally.