The Financial Conduct Authority (FCA) is banning the sale and marketing of financial products that track popular cryptocurrencies such as bitcoin, amid fears investors are being exposed to scams.
The new rules affect the sale of derivatives - financial contracts between two or more parties based on the future price of an underlying asset (such as cryptoassets) and exchange-traded notes (ETNs) - debt notes issued by banks that offer returns based on the movements in a specific benchmark such as a crypto index.
The FCA says that retail customers suffer significant harm from being exposed to such 'ill-suited' products and the ban will be effective from 6 January 2021.
Here, Which? explains what cryptoassets are, the reasons behind the FCA's ban and how you can keep safe from investment scams.
Cryptoassets are cryptographically secured (protected through the use of codes) and have digital representations of value or contractual rights that can be transferred, stored or traded electronically.
This type of asset regulates the creation of new units, verifies and secures the transactions without the intervention of any 'middleman'.
Cryptocurrency is the most well-known type of cryptoasset. These are digital currencies that were created to act as an alternative to 'fiat' or government-issued currency that may be easily transacted across the world.
You can speculate and capitalise on cryptocurrency price movements.
So, an investor in a bitcoin derivative would make money if the value of bitcoin rises, but they would never actually own the currency.
The FCA is not stopping people buying bitcoin or other cryptocurrencies directly, it's banning the sale of products based on their prices.
It says these products can't be reliably valued by retail consumers because of the:
The watchdog estimates that retail consumers will save around £53m from the ban.
Cryptoassets are only regulated in the UK for money laundering purposes.
Ordinarily, the FSCS will compensate you up to £85,000 worth of investments from April 2019 if you've received bad investment advice or if a regulated investment firm goes out of business and can't return your money.
If something goes wrong with your bitcoin investment, you stand to lose what you put in.
While there are certain risks with cryptoassets, those who were willing to take on substantial risk may have made some money off them.
However, one of the biggest issues is that these products are often subject to scams.
A number of cryptocurrency scams have emerged recently. Criminals have started using celebrity images to trick people into investing in cryptocurrencies such as bitcoin on social media and other websites.
Case study: I lost £4,000 to bitcoin con artist
Last year, a Which? member saw an online advert for a bitcoin investment scheme that said it was endorsed by high-profile celebrities. The member opened an account and paid £250 with their Halifax credit card.
Later they were contacted by the investment company and were persuaded to add a further £4,000 to its trading account, again using their Halifax credit card. The member felt confident because of the celebrity endorsements and was repeatedly told by the company that they would be able to get their money back at any time.
However, when the member told the firm they wanted to withdraw all the money they had invested, all they got back was £250. The member was unable to get hold of the firm to retrieve the rest of their money.
Sadly, the member was caught by a common scam. Just a few months prior, the FCA issued a warning that the company in question wasn't authorised to offer investments.
Unfortunately, scammers are using increasingly sophisticated tactics to con investors out of their money, which means the FCA's ban won't necessarily stop fraudsters finding opportunities to act.
Nigel Green, chief executive and founder of financial advisory firm DeVere Group, says: 'The tide is not going back. Traditional, fiat, paper currencies are not the future.
'Therefore, regulation - not a ban - is necessary. This will provide further protection for the growing number of people using cryptocurrencies, it will help stamp out criminal activity, the less potential risk there will be for the disruption of global financial stability, and the more opportunities there will be for economic growth and activity in those countries which introduce it.'
We asked what our Twitter followers thought of the ban and they too were sceptical.
Investment scams are getting harder to spot but there are some telltale signs to help protect your hard-earned money. Here's how a typical scam could play out.
If you want to recover your money we've written read our that will take you through what you need to do depending on the payment method you used. It also explains your options if you didn't authorise the payment.