The Financial Conduct Authority (FCA) has published its roadmap to fully regulate crypto assets in the UK by 2026. The regulator also released details of a survey showing both crypto growing in popularity and a significant misunderstanding of how strictly the market is regulated. The FCA has now stepped in to outline how new regulations will be drawn up and when they are likely to be introduced to the UK crypto market.
Are cryptocurrencies regulated in the UK?
Currently, the FCA only regulates for marketing and anti-money laundering, so if something were to go wrong, there would be little recourse for investors. This is in contrast to the regulation of conventional investments and protection under the Financial Services Compensation Scheme (FSCS) or the Financial Ombudsman Service (FOS). With these programmes, you can get some or all of your money back if you are scammed or your provider goes bust.
While all UK cryptocurrency firms must be registered with the FCA, investors do not have access to the FSCS or FOS if their digital assets are compromised, meaning there is no reimbursement for any lost or stolen funds.
Why does the FCA need to regulate the crypto market?
The announcement of the crypto roadmap follows growth in the popularity and media coverage of crypto assets. Bitcoin – the most well-known cryptocurrency – recently hit an all-time high of just under $100,000, while the FCA's own survey found that 12% of UK adults now own crypto (up from 10%) and that awareness of crypto is at 93% (from 91%). The amount of crypto being held has increased too, with the average holding rising to £1,842 from £1,595 in the last survey.
The survey also exposed why the FCA's roadmap is so crucial to the future of crypto assets in the UK, with around a third of respondents erroneously believing that the regulator would be able to step in if something were to go wrong and they lost their money. This misconception of how the crypto market operates is further exacerbated by the fact that 10% of respondents did no research before investing.
What is the FCA crypto roadmap?
The FCA crypto roadmap is a document outlining planned FCA policy publications for crypto assets over the next few years. It includes areas where the FCA is seeking feedback on its plans and details of the content the regulations are expected to cover.
Key steps in the roadmap include discussion papers on market abuse at the end of 2024, then consultation papers on stablecoins in 2025, followed by the full policy publication, expected in 2026.
The timeline is not set in stone and the flexible approach should, according to the FCA, help the consultations be more effective and make the policy development more transparent.
Matthew Long, director of payments and digital assets at the FCA, said: "Our research results highlight the need for clear regulation that supports a safe, competitive, and sustainable crypto sector in the UK. We want to develop a sector that embraces innovation and is underpinned by market integrity and consumer trust."
How do you invest in crypto safely?
Investors in the US are able to buy ETFs that directly track the price of cryptocurrencies bitcoin and ether. This is not currently allowed by the FCA in the UK, but may be something that changes as the consultation process moves forward. At the moment, UK investors will still need to use a crypto exchange and make a direct purchase.
Keep in mind that crypto assets represent a high risk with little regulation and no financial protection from the Financial Services Compensation Scheme (FSCS) to fall back on. This makes crypto unsuitable for the many investors who may not be willing to risk losing everything they originally put in. If you do accept the risks, crypto should account for a very small proportion of your wealth to mitigate its volatility.
We go into more detail on buying crypto in our article 'A beginner’s guide to investing in bitcoin and cryptocurrency'.
