On 7 March 2019 the FCA published the results of its research into consumer attitudes to and awareness of crypto-assets. The regulator had commissioned two pieces of research to understand both attitudes and motivations among crypto-asset customers, and the level of awareness of these products among consumers in general: the first, produced by research firm Revealing Reality, explores the attitudes, understanding, motivations and beliefs that underpin people’s decisions to purchase and use different crypto-assets; the second, produced by research firm Kantar TNS, aims to give an idea of the awareness, understanding and purchasing habits related to crypto-assets of a nationally representative sample of UK consumers. Revealing Reality's report can be found here, and Kantar TNS's report can be found here.
The FCA's findings
Attitudes and behaviours
On the basis of the reports, the FCA drew out three main conclusions about crypto-asset consumers' attitudes and behaviours in this field. The FCA believes that:
- Many consumers see crypto-assets as a fast-track to easy wealth;
- Many consumers may not fully understand what they are purchasing; and
- There are signs that crypto-assets are accompanied by risky behaviours.
The FCA reports that consumers purchasing crypto-assets are often looking for ways to ‘get rich quick’. Many of those interviewed by the Revealing Reality researchers perceived crypto-assets as a shortcut to easy money and wealth. They often cited influence from others, including social media, as motivation for investing. Revealing Reality also found many consumers seemed to be overstating their knowledge and understanding of crypto-assets, for example choosing a particular crypto-asset to invest in on the basis that they could buy a 'whole' coin, whereas in an alternative crypto-asset this was not possible.
It was noted that some consumers seemed to assume crypto-assets were in general tangible assets, due to the language and imagery associated with crypto-assets, such as ‘mining’ and ‘coin’.
The FCA concludes from the research that consumers’ introduction to crypto-assets is often prompted by the advice of a few influential recommendations. Many consumers had told Revealing Reality that they were distrustful of mainstream media or official sources of information. Consumers often cited social media and gaming platforms as sources of news and information about crypto-asset prices and products.
The research suggested that often consumers don’t carry out due diligence before buying crypto-assets. Several consumers interviewed told Revealing Reality that they hadn’t done much, or any, research on crypto-assets.
While the FCA seems to be clear from the research that some consumers are aware of risks when investing in crypto-assets, including price volatility, the reports also highlight that some consumers say that risk is part of the attraction. Many don’t appear to have any strategy to sell their assets or a sense of what would motivate them to do so.
Level of awareness and scale of the consumer market
Separately, the research carried out by Kantar TNS showed that only a small minority of UK consumers have bought crypto-assets and many consumers do not understand what crypto-assets are. The FCA estimates that only 3% of those surveyed had ever bought crypto-assets, and 73% of UK consumers don’t know what a 'cryptocurrency' is or are unable to define it.
The reports also revealed that consumers do not tend to spend large amounts of money on investing crypto-assets and rarely borrow in order to do so, most using disposable income.
Interestingly, the research concluded that most consumers who haven’t yet bought any crypto-assets probably will not do so. Only 1% of those surveyed who had never bought crypto-assets said that they would definitely buy in the future.
Level of potential harm
Based on the results of research outlined above, in particular, it seems, taking into account the findings on the level of awareness and uptake of crypto-assets among consumer generally in the UK, the FCA has concluded that the anecdotal evidence about the potential harm of crypto-assets to consumers may be overstated.
In October 2018 the FCA identified three major risks of harm associated with crypto-assets and distributed ledger technology in a joint report with the Bank of England and HM Treasury: risk to market integrity; risk of financial crime; and risk to consumers (read out full report on this publication here). The conclusion the FCA has drawn from the results of this month's research may go some way to mitigating its concerns about the scale of the potential risk of harm to consumers, but the results do highlight that among the small proportion of consumers involved in crypto-assets, understanding of the products available to them and the risks involved in investing in them is nevertheless poor.
In light of the FCA's recent activity in other areas related to consumer protection (we have reported on developments in FCA movements on motor finance, the rent-to-own market this month alone), the findings of this research will no doubt influence future FCA policy announcements on crypto-assets.
The FCA is currently accepting responses to its consultation paper (CP19/3) of 23 January 2019 on crypto-assets and the circumstances under which they could fall within the regulatory perimeter.
The consultation closes on 5 April 2019 and the FCA intends to publish final guidance by summer 2019. Firms whose businesses involve crypto-assets, in particular those that have consumer customers or have a presence on social media, should follow closely FCA developments in this rapidly developing area of regulation.
Co-authored by Maggie Lund.