U.K. Crypto Users Slam FCA’s Arbitrary Account ‘Tests’

• FCA guidelines test users‘ suitability for crypto products.
• U.K. crypto users decry unfair tests resulting in Nexo account restrictions.
• The U.K. landscape appears hostile to crypto.

Crypto regulations and compliance are crucial steps toward mass adoption and deeper integration with traditional financial systems. In November 2023, the UK’s Financial Conduct Authority (FCA) took a significant step by releasing guidelines requiring crypto exchanges to test users’ competency in using crypto products.

On July 2, the Nexo crypto platform implemented FCA-mandated tests for its U.K. users. However, this rollout was met with a wave of complaints from users who failed the test and subsequently had their accounts restricted. This development has reignited debates about the merits of such user testing and concerns about regulatory overreach, especially given that no similar tests are required for gambling or buying stocks.

U.K. Crypto Users Slam Nexo, FCA

Since Nexo’s rollout of the FCA tests on Tuesday, social media platforms have been inundated with complaints from U.K. crypto users whose accounts have been restricted after failing the tests.

Users highlighted several concerns with Nexo’s implementation of the FCA-mandated test, including ambiguous questions and failing despite answering honestly about the percentage of their income or net worth invested in crypto. These users argue that such personal financial decisions should not be subject to arbitrary limits set by the FCA or any other regulatory body.

Another common grievance among users was the perceived inconsistency between Nexo’s test and those of other platforms, which some claim to have passed without issue. One Reddit user stated that the Nexo tests were ‘more exhaustive than what I’ve seen on other platforms.’ This is likely due to Nexo offering more advanced features than other platforms, including crypto credit lines and earning products.

The Nexo test is structured in two parts. The first part focuses on investor categorization, aiming to determine whether the user falls into categories such as high net worth individual or professional investor. The second part is an appropriateness test designed to assess the user’s competence with Nexo-specific products, including the Nexo Booster and credit card borrowing.

In response to the mounting criticism, Nexo has defended its position , stating, ‘Nexo has prioritized compliance and responsible product offerings, adhering to regulatory guidance and standards to provide a secure and trustworthy environment for all our users.’

The FCA’s stance on appropriateness testing originated from the guidance it issued to crypto firms in November 2023, which aimed to protect investors from high-risk investments.

FCA Hindering Adoption?

Last year, the FCA released comprehensive guidance for crypto firms , focusing on evaluating retail investors’ understanding of crypto investment risks.

The guidelines stressed the need for users to grasp and accept cryptocurrencies’ high volatility and their lack of coverage by traditional financial safeguards like the Financial Ombudsman Service or the Financial Services Compensation Scheme.

The FCA also issued guidance on crypto promotions around the same time, which had far-reaching effects on the industry. One notable consequence was Nexo’s decision to discontinue its card cashback offer for U.K. users. This move, along with similar actions by other crypto platforms, sparked debate about whether the FCA’s regulatory approach is inadvertently hindering crypto adoption in the U.K.

These developments stand in contrast to the U.K. government’s prior rhetoric promoting the country as an emerging crypto hub. In 2022, there was a strong push to position the U.K. at the forefront of crypto innovation. However, recent events, such as the withdrawal of popular features like card cashback, combined with existing challenges like a crypto-unfriendly banking system , seem to contradict this vision.

On the Flipside

• With a new U.K. government set to come in, neither of the two major political parties has addressed crypto as a campaign issue.
• Some argue that the complexity of crypto products justifies stricter measures, such as appropriateness tests, compared to traditional financial products.

Why This Matters

The Nexo-FCA situation underscores the growing pains of crypto regulation. As the industry matures, finding the right regulatory approach that protects consumers without hampering innovation will be key to realizing crypto’s potential.

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