Cryptoassets regulation in the UK

Find out about the regulation of cryptoassets (including ‘cryptocurrencies’ such as Bitcoin and Litecoin) and the risks of investing and making payments using cryptoassets.

Before you invest in cryptoassets, the Financial Conduct Authority (FCA) recommends that you should be aware of the following:

Before using cryptoassets to make payments, you should be aware that:

  • the cryptoassets/service you are using may not be regulated
  • you are unlikely to be protected if something goes wrong – for instance you are unlikely to have access to the FOS or the FSCS

Cryptoasset registration

In January 2020, new regulatory powers were introduced to allow the FCA to supervise how cryptoasset businesses manage the risk of money laundering and counter-terrorist financing. Now, UK cryptoasset businesses must comply with the Money Laundering Regulations (MLRs) and register with the FCA.

If a firm you are dealing with didn’t submit an application by 15 December 2020, it won’t be eligible for the Temporary Registration Regime. It should have returned any cryptoassets to you and stopped trading by 10 January 2021. 

What you need to do

Step 1: Check if the firm is on the Financial Services Register or list of firms with temporary registration.

Step 2: If they aren’t on the FS Register, ask them if they are allowed to carry on business without being registered.

Step 3: If they aren’t allowed to carry on business, we suggest withdrawing your cryptoassets and/or money, as the firm is now operating illegally.

The FCA expects firms to act in their clients’ best interests. But their regulatory powers don’t cover how cryptoasset firms conduct their business with you. Even if a cryptoasset business is registered with the FCA, the regulator is not responsible for making sure that they protect your assets, among other things.

This means you won’t have the same protections for cryptoasset activities as you may have with other activities supervised by the FCA. For example, under the MLRs, it’s unlikely that you will have access to the ombudsman service or FSCS, even if a firm has temporary or full registration.

Unregistered cryptoasset businesses

You can find a list of unregistered cryptoasset businesses on the FS Register. It shows UK businesses that appear to be carrying on cryptoasset activity without being registered with the FCA.

This isn’t a complete list of all unregistered cryptoasset businesses in the UK. It includes details of unregistered businesses that the regulator is aware of.

What are cryptoassets?

Cryptoasset is a broad term and covers many different types of products. The most popular forms of cryptoassets include tokens like Bitcoin, Ether and Litecoin.

We call these ‘exchange tokens’ because they are intended to be used as a method of payment. They are sometimes referred to as cryptocurrencies, cryptocoins, or payment tokens.

Exchange tokens, like other cryptoassets, operate using distributed ledger technology (DLT), like blockchain, and are not issued or backed by a central bank or other authority.

Most cryptoassets are not underpinned by any currency or other asset and are not considered to be a currency or money.

Regulation of cryptoassets

Exchange tokens (such as Bitcoin and other cryptocurrencies) are only regulated in the UK for money laundering purposes.

If you buy these types of cryptoassets, you are unlikely to have access to the Financial Ombudsman Service or the Financial Services Compensation Scheme (FSCS) if something goes wrong.

However, some types of cryptoassets may be regulated depending on how they are structured. Security tokens, for example, fall within our regulatory remit. They include tokens that provide rights, such as (among others):

  • ownership position
  • repayment of a specific sum of money
  • entitlement to a share in future profits

Check the Financial Services Register to find out whether a firm is authorised to carry on any of these activities.

Investing in cryptoassets

Cryptoassets are considered very high risk, speculative purchases. If you buy cryptoassets, you should be prepared to lose all your money.

We have also received a high number of reports of scams involving cryptoassets.

There are several factors you should consider before deciding to buy cryptoassets.

  • The cryptoasset marketplace is a target for fraud and scams so you should be extremely cautious before investing. If a business offers guaranteed or high returns; if an opportunity sounds too good to be true; or if you are pressured to act quickly, please be aware you may lose your money.
  • You should be very careful if you’re considering buying cryptoassets. Make sure that you check and carefully consider the cryptoasset business. You should know who you are dealing with and whether a cryptoasset is suitable, especially considering the risk of such products. For example, when entering a business relationship, you may want to consider whether the business is based in the UK, or if it is registered with the FCA.
  • There is no guarantee that cryptoassets can be easily converted back into cash. Converting a cryptoasset back to cash depends on the demand and supply in the market.
  • The performance of cryptoassets is volatile, with the value of an investment dropping as quickly as it can rise.
  • We have banned the sale of crypto-derivatives to retail customers, due to our concerns surrounding the volatility and valuation of the underlying cryptoassets.

If you would like more information about cryptoassets, you may wish to get financial advice before making a decision to invest. More information on factors to consider before entering a high return investment can be found here.

Find out more about the regulator’s approach to cryptoassets.

Using cryptoassets to make payments

Before you make a purchase, receive a payment or pay an invoice using cryptoassets, be aware that:

  • most cryptoassets/services are not regulated
  • so, if something goes wrong you are unlikely to have access to the FSCS or the Financial Ombudsman Service, because these products are largely unregulated

Stable tokens

Stable tokens, often referred to as stablecoins, are a type of cryptoasset that can be used to make payments. These tokens are designed to stabilise their value by referencing one or more assets, such as fiat currency or a commodity.

The value of stable tokens can fluctuate – sometimes significantly – meaning you may have less money than you thought when using them to make a payment.

The UK government is currently consulting on stable tokens as a means of payment. If the Government’s proposals are adopted, the FCA will consult on rules applying these proposals. It would mean stable tokens used for payment and services would in the future become regulated giving consumers protections under the rules.

About Milena Ratner

Milena Ratner covers blockchain news - company news, policy news and regulation.

View all posts by Milena Ratner →