By FMA Editorial Team
Cryptocurrencies continue to rise in popularity and now there are thousands of them out there, with hundreds of cryptocurrency trading platforms available. With such numbers and many providing limited or no user protections, it can feel like the wild west of investing.
Cryptocurrencies are highly volatile, and many investors have been attracted to the spectacular gains in recent times. The value of cryptocurrencies is driven by market sentiment. A piece of news can cause a massive spike in a cryptocurrency’s value – and it can also cause the value to plummet just as easily.
Aside from their volatility, cryptocurrency scams are among the most common investment scams, with investors being conned out of their money by scammers touting spectacular returns on cryptocurrency investments. Interestingly, some of these scams have no cryptocurrency involved. It is simply an excuse to get your attention.
For these reasons, cryptocurrency should be considered a high-risk investment. Investors should be prepared to lose their entire investment.
There are some things you can do to protect yourself if you’re determined to invest in cryptocurrency.
If you are going to trade in cryptocurrencies, make sure you use a trading platform based in New Zealand. Unlike offshore based trading platforms, New Zealand based trading platforms do give some measure of protection as they have legal obligations.
It is important to know that these protections are in relation to how the platform operates not the actual cryptocurrency. So, there is no protection or recourse if your cryptocurrency of choice goes wild or goes to zero. That comes with the risks of trading in crypto.
Provider requirement #1: Register on the Financial Services Provider Register (FSPR)
New Zealand based cryptocurrency trading platforms must be registered on the FSPR. Once registered on the FSPR you will be able to check:
- Their registration status
- General details
- Address
- Services they can provide
- Filings
- Dispute resolution scheme details
Any cryptocurrency trading platform claiming to be registered/licensed/ based in/have offices in New Zealand MUST be registered on the FSPR. Always check on the FSPR if a platform is claiming to be New Zealand based.
Provider requirement #2: Be a member of a Dispute Resolution Service (DRS)
If a trading platform is registered on the FSPR, they must belong to a Dispute Resolution Service (DRS). If you have a complaint or dispute with the trading platform, you can handle this through the dispute resolution complaints process. Each DRS has their own rules about their complaints process, what you must do and the kinds of complaints they deal with.
Provider requirement #3: Adhere to fair dealing provisions
Registered trading platforms are prohibited from engaging in misleading conduct or making false, deceptive, or unsubstantiated statements.
If the overall impression on a trading platform’s website, social media sites and promotional material is misleading, it will be in breach of the fair dealing requirements. A FSPR registered trading platform must ensure messaging about risks and rewards of buying or trading cryptocurrencies is balanced. They are not allowed to cherry-pick or omit key information or bury key messages about risk in the fine print.
Provider requirement #4: Adhere to Anti-Money Laundering (AML) obligations
All FSPR registered trading platforms must make sure that trades in cryptocurrencies on their platforms are in line with the Anti-Money Laundering and Countering Financing of Terrorism Act 2009. This requires platforms to ensure they have positively identified each user registering to use their platforms. Given they are gathering personal information, they would also be required to ensure they have in place safety measures for protecting your information.
Cryptocurrency prices typically tend to be pretty choppy largely because they are driven by everyone else’s sentiment. This is very different to traditional assets such as stocks and bonds – sure there is an element of market sentiment in the movement of those assets too, but they are also influenced by the underlying value drivers of the businesses they represent."
