3.6 FCA Safeguards: Risk Warnings and Appropriateness Checks

FCA Safeguards: Risk Warnings and Appropriateness Checks

What you will understand after this chapter

Why firms must show prominent risk warnings before allowing most UK consumers to access crypto trading features.

What an “appropriateness” check is, and how it assesses basic knowledge and experience.

How these safeguards are intended to help people understand that crypto is high risk and that they could lose all the money they put in.

This chapter explains FCA‑driven safeguards in general. It is not a recommendation to open an account, trade, or invest in cryptoassets.

Why these checks exist

UK authorities have highlighted that many people have entered crypto without fully understanding the risks, including the possibility of large and rapid losses. To address this, firms that market or enable certain crypto activities to UK consumers must follow rules on:

Showing clear, prominent risk warnings.

Assessing whether products or services are appropriate for a customer’s knowledge and experience.

These measures aim to support better understanding; they do not make cryptoassets low risk or suitable for everyone.

Step 1: Risk warnings and acknowledgments

Before enabling most forms of crypto trading or access to certain features, firms are expected to display risk warnings in a clear and highly visible way. These typically explain that:

Crypto prices can be very volatile and may fall quickly and significantly.

There is generally no Financial Services Compensation Scheme (FSCS) cover if things go wrong.

Consumers should be prepared for the possibility of losing all the money they put in.

Customers are usually asked to indicate that they have read and understood these warnings (for example by ticking a box or confirming in‑app). If they do not do so, access to higher‑risk crypto services is likely to remain restricted.

Step 2: Appropriateness checks

Firms must also consider whether a product or service is appropriate for a given customer, based on their knowledge and experience. To do this, many providers use short questionnaires that:

Ask about previous investing or trading experience.

Check understanding of concepts such as volatility, leverage, risk of total loss and the absence of compensation schemes.

If answers suggest limited understanding, firms may:

Restrict or block access to certain features.

Apply a cooling off period before allowing the customer to proceed.

The details can vary, but the purpose is to prompt reflection and to help prevent people from engaging in activities they do not understand.

What a “pass” does and does not mean

If a customer meets a firm’s internal criteria for the risk warning and appropriateness steps, the firm may allow them to use more of its crypto‑related services, subject to any other limits or checks.

However:

This does not mean the firm (or the FCA) is saying crypto is suitable for that person.

It does not reduce the underlying risks, or guarantee that losses will be limited.

It does not create FSCS cover or other protections unless clearly stated for a specific product.

The responsibility for deciding whether to get involved with crypto, and for any resulting gains or losses, remains with the individual.

Key points to remember

Risk warnings and appropriateness checks are part of the FCA’s wider regime for cryptoasset financial promotions and higher risk investments.

They are intended to help consumers understand that crypto is high risk and can result in losing all the money put in.

Having completed these steps does not change the risk profile of cryptoassets.

If you are unsure whether crypto is appropriate for you at all, consider seeking independent financial advice and be prepared for the possibility of losing all of the money you put into cryptoassets.

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FCA Registered Cryptoasset Exchanges

Cryptoassets are high-risk and unregulated; verify on FCA register.