United Kingdom traders may not be compensated when crypto exchanges go bankrupt

Despite the UK’s Financial Conduct Authority’s latest suggestions, nothing is set in stone yet.

United Kingdom traders may not be compensated when crypto exchanges go bankrupt

According to a proposal from the United Kingdom's Financial Conduct Authority, crypto assets would not qualify for Britain's compensation program when companies go bankrupt.

The Financial Services Compensation Scheme may exclude certain types of investments, such as crypto assets and unlisted securities, under certain circumstances, according to a discussion paper released on Monday by the regulator.

Even though the FCA does not authorize most firms to sell crypto investments, traders would not be eligible for compensation, however, the proposals mark a hardening of rhetoric and a further indication that crypto is largely beyond the reach of global regulators.

If a firm goes bankrupt, the FSCS will protect up to 85,000 pounds ($112,700) per customer. As a result of investment firms' failures, FCA levies have more than doubled to 717 million pounds in a decade.

In addition, the watchdog is evaluating if sophisticated individuals or high-net-worth individuals should be allowed to make claims.

Regulators around the world have taken notice of crypto assets due to the volatile price movements, the complexity of the products, and the lack of consumer protection.  The largest crypto market, Bitcoin, fell as much as 21% before recovering on Saturday, and Ether, the second largest, fell as much as 17%.

Gary Gensler, chairman of the United States' Securities and Exchange Commission, warned that crypto assets are "dripping with fraud, scams, and abuse" and that "a lot of people will suffer" if the federal government does not strengthen investor protections. "Investors should be prepared to lose their entire investment," the FCA said in November.

Despite the FCA's latest suggestions, nothing is set in stone yet. Regulatory officials said Monday that adding crypto to the list of excluded activities and products could lead to confusion. Submissions are due March 4.