The NFT sector is a lot of things; exciting, innovative, and even controversial at times. But for all these, it is worth noting that the industry is generally unregulated. As was the crypto sector years ago, regulators have not yet fully caught up with the NFT industry to offer in-depth oversight.
Citizens of the United Kingdom were reminded of this on May 11, 2022, when the country’s Financial Conduct Authority released a reminder about NFTs. This reminder also served as a warning for those who want to invest in NFTs and other digital assets.
It was stated in the official post on the FCA website that the reminder was triggered by several social media posts that were likely promoting NFTs and cryptocurrency to the masses. This is probable given how popular NFTs are online and how a majority of the promotion for them is done on social media.
This online popularity and the discourse it has sparked have helped contribute to NFTs being a billion-dollar business that only continues to grow. Despite all of this, the FCA was quick to remind people of its underregulated status.
“We cannot comment on individual products. However, as we have said previously, the FCA has not been given regulatory oversight over direct investments in cryptoassets and NFTs. There are no consumer protections for those who buy any cryptoassets and NFTs, and they are not FSCS protected. As a result, if you buy cryptoassets you should be prepared to lose all the money you invest,” the post says.
This lack of protection for buyers of digital assets has been proven true in the past. As we know, the digital assets sector has seen pump-and-dumps, rug pulls, platform hacks, and multiple project failures over the years and rarely is any respite given to investors.
While the unregulated nature of the industry makes it easier for consumers to access, it also leaves them relatively unprotected compared to things like stocks or shares. However, the warning put out by the FCA is not only for the buyers of digital assets but the sellers as well.
As per the post, anyone marketing digital assets like cryptocurrency and NFTs has to state clearly that they are not regulated by the FCA and are not protected by financial compensation schemes.
Those familiar with the industry have likely come across such disclaimers when digital assets are being advertised. But it seems not everyone doing this as the Advertising Standards Authority (ASA) has had to investigate instances of this not being communicated to investors.
An Unregulated Market
Clearly, there are still things that need to be ironed out when it comes to NFTs and their relationship with regulators. But these sorts of warnings serve a very important purpose in the industry.
This is that they make sure that investors know what they are getting into. After all, there is no good in newbies putting money into digital assets and being blindsided by the lack of protection from regulators like the FCA.