What steps must I take as a UK resident to engage in crypto trading on the Lykke Exchange?

Why are there specific requirements for UK residents? 

The verification process aligns with the latest regulatory framework and guidelines set forth by the UK’s Financial Conduct Authority (FCA). These measures aim to ensure that investors are fully informed about the risks associated with crypto assets and possess adequate knowledge before investing.


The UK’s FCA has implemented new rules to strengthen financial promotions of investments in cryptoassets. From January 8, 2024, Lykke and other cryptoasset services firms in the UK are required to assess the appropriateness of their customers for investments in cryptoassets, categorize their customers according to one of the three investor profiles and implement a cooling off period. 


What is the FCA?

The FCA serves as the regulatory authority for financial services in the UK and oversees firms offering financial services to consumers to uphold the integrity of the UK's financial markets.


Why is an appropriateness test and investor profile categorization necessary? 

These procedures are integral components of the new regulatory framework introduced by the FCA to ascertain that investors comprehend the risks involved in crypto asset investments.


Why are there limitations on retaking the appropriateness test? 

While you can retake it immediately once, subsequent attempts require a 24-hour waiting period. This restriction aims to prevent investors from making rushed decisions regarding high-risk investments.


Why must I categorize my investor profile? 

This requirement is another facet of the new regulations established by the FCA, ensuring that promotions of crypto asset investments are accessible only to investors deemed capable of understanding associated risks.


As a retail investor, how should I estimate my planned investment percentage? 

The future may be uncertain, but try to forecast the highest percentage of your net assets you anticipate investing over the next year, given prevailing circumstances.


Why does Lykke require information on annual income and/or net assets from high-net-worth investors? 

This information helps ensure that our services are accessible only to investor types considered suitable for comprehending and managing risks associated with crypto asset trading.


What if I don't fit into any available investor category? 

If you don't fall into any provided category, we regret to inform you that our services may not be suitable for you, as this suggests that investing in crypto assets may not align with your financial situation or risk tolerance.


Why is there a waiting period before trading post-verification? 

This is another provision of the new regulations by the FCA, designed to prevent investors from making hasty investment decisions. Rest assured, we'll notify you once trading restrictions are lifted.


How am I safeguarded from risks? 

Although you've been made aware of associated risks, it's crucial to understand that no protection is guaranteed if things go wrong. Notably, investments in crypto assets aren't covered by the Financial Services Compensation Scheme (FSCS). In other words, this type of investment isn’t recognized as the sort of investment that the FSCS can protect. Learn more by using the FSCS investment protection checker. 


The Financial Ombudsman Service (FOS) will not be able to consider complaints related to Lykke. Learn more about FOS protection.


Where can I access more information on risks? 

What are the key risks?


1. Potential Loss of Investment:

The performance of most cryptoassets can be highly volatile, with their value dropping as quickly as it can rise. Individuals should be prepared for the possibility of losing all invested funds in cryptoassets.

2. Limited Protection in Case of Issues:

Investors should not anticipate protection in the event of adverse outcomes, as this type of investment is not covered by the Financial Services Compensation Scheme (FSCS) or eligible for consideration by the Financial Ombudsman Service (FOS). These investments fall outside the regulatory framework recognized by these entities.

3. Liquidity Concerns:

There is no guarantee of being able to sell investments in cryptoassets and stablecoins promptly, as factors such as market demand and operational issues can impede the sale process.

4. Complexity of Investments:

Investing in cryptoassets can be intricate, necessitating thorough research to comprehend associated risks. Investors are advised to exercise caution, as promises of extraordinary returns may be misleading.

5. Stability Risks of Stablecoins:

While stablecoins aim to maintain a stable value relative to another currency, they are susceptible to fluctuations and may not consistently maintain a 1:1 pegged value.

6. Dependency on Issuers for Asset-Backed Tokens:

The value of asset-backed tokens is influenced by market fluctuations but heavily reliant on the financial strength and credibility of the token issuer and custodian.

7. Volatility of Meme Coins:

Meme coins are characterized by extreme price volatility and speculative nature, driven by social media trends rather than intrinsic value or utility.

8. Diversification Advised:

Investors are cautioned against concentrating all investments in a single asset type, as diversification reduces dependency on the performance of any one investment. A general guideline suggests limiting high-risk investments to no more than 10% of total investment capital.

If you are interested in learning more about how to protect yourself, visit the FCA's website.

For further information about cryptoassets, visit the FCA’s website on crypto basics.