The 111 crypto asset firms operating in the UK without registration pose a risk to the broader financial system, according to Mark Steward, head of enforcement and market oversight at the Financial Conduct Authority’s (FCA).
He warned consumers, banks and payment services companies against dealing with them.
“We have a number of firms that are clearly doing business in the UK without being registered with us and they are dealing with someone: banks, payment services firm, consumers,” Reuters news agency quoted him as saying at an industry event. “This is a very real risk, so we are worried about that.”
Since January when the FCA was appointed anti-money laundering and counter terrorist financing (AML/CTF) supervisor of crypto asset firms, those companies have had to obtain full FCA registration before trading. Only a few have, Steward said.
On the increasing number of people putting money into crypto assets, he commented: “The reason many are investing now is because they have a fear of missing out on what might be a boom. Leaving aside how volatile these instruments actually are, it has tulip mania written all over it.”
That is reference to the sudden rise and collapse of prices for tulip bulbs in the Netherlands during the 1630s, which ruined many investors.
The term tulip mania is now used as a metaphor for an investment bubble which Investopedia defines as investors losing track of rational expectations, leading to a massive upswing in the price of an asset and a positive-feedback cycle continuing to inflate prices.
Then investors realise they are holding an irrationally priced asset, prices collapse due to a massive sell-off and the overwhelming majority go bankrupt.