The UK’s Financial Conduct Authority (FCA) has announced its roadmap to fully regulate crypto assets by 2026, as it aims to support a “safe, competitive and sustainable” market for cryptocurrencies in the UK.
Matthew Long, director of payments and digital assets at the FCA, said that the regulator is “committed to working closely with the Government, international partners, industry and consumers to help [it] get the future rules right”.
“A comprehensive regulatory regime for crypto will provide the clarity and confidence needed to encourage further innovation and growth within the sector,” said Dan Moczulski, UK managing director at investing platform eToro.
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The FCA is proposing a series of consultation and discussion papers between now and 2026 in order to establish a regulatory framework for crypto assets.
This roadmap will begin with discussion papers on market abuse as well as admission and disclosures during Q2 2024, with consultation papers on stablecoins, custody and and prudential elements expected during the first half of 2025.
The roadmap finishes with the publication of final policy statements in 2026.
It is seen by many as an attempt to catch up with similar regulatory frameworks in the EU, which put its Markets in Crypto Assets Regulation (MiCA) regulation into effect in June 2023, and the US, which is currently clarifying its own regulatory stance towards crypto assets through the Financial Innovation and Technology for the 21st Century Act (FIT 21). President-elect Donald Trump is also expected to be highly pro-crypto during his second term.
Cryptocurrencies, such as Bitcoin and Ethereum, are currently unregulated assets in the UK. This means that, at present, money invested into the crypto ecosystem is not protected by the kinds of rules that govern more conventional investments. Crypto investors don’t have access to the Financial Services Compensation Scheme (FSCS) or the Financial Ombudsman Service (FOS), for example, if something goes wrong with their investment.
This adds extra risk into investing directly in crypto, on top of the risk inherent in the generally high volatility of crypto assets.
However, results from the FCA’s latest research on consumer behaviours and attitudes towards crypto show that approximately one in three people are unaware of this, and believe that they could raise a complaint with the FCA if they needed recourse or financial protection regarding a crypto investment.
“There is often a perception that this is a more regulated space than is the case, which is worrying,” said Chris Recker, a legal director at law firm Kingsley Napley who specialises in digital asset disputes. “Not only can people lose their investment due to poor investment decisions but scammers frequently operate in this sector duping people out of sizeable sums.”
UK’s crypto ownership on the rise
The FCA’s research also shows an increase in crypto ownership among British investors.
Twelve percent of UK adults now own crypto, according to the research, up from 10% in its previous findings.
The average value of crypto held has increased from £1,595 to £1,842, while awareness of crypto has increased from 91% to 93%. The FCA’s survey shows that family and friends were the most common source of information for new crypto buyers.
Just one in ten respondents said that they do not carry out any research before buying crypto.
With increased ownership comes the increased prevalence of crypto scams. As the FCA moves towards adopting a regulatory framework for crypto, it has underscored its determination to stamping out opportunities for scammers to take advantage of consumers via such scams.
The FCA claims to have taken down over 900 scam crypto websites and over 50 apps since it became responsible for regulating crypto asset promotion in October 2023.
“There are steps that can be taken to attempt to trace and recover funds and crypto assets, including by way of urgent interim remedies such as disclosure orders and freezing injunctions,” said Recker, “but there is no failsafe or guaranteed route to recovery.”
How to invest in crypto
For the reasons outlined above, investors shouldn't invest in crypto unless they are willing to lose all of the money they put in. If you are aware of the risks but still want some direct exposure, you could consider a small allocation as part of a broadly-diversified portfolio.
Besides buying crypto directly via a crypto exchange (though, as above, beware of scams and research these thoroughly), you could invest in a proxy for the crypto market. Stocks like crypto exchange Coinbase (NASDAQ:COIN) or Bitcoin miner MARA Holdings (NASDAQ:MARA)tend to trade in correlation with crypto prices, particularly Bitcoin.
Technology firm MicroStrategy (NASDAQ:MSTR) tends to experience more dramatic movements than Bitcoin because its management uses debt in order to add Bitcoin to its balance sheet. It has become the world’s largest corporate holder of Bitcoin in doing so, and is extremely exposed to changes in the Bitcoin price.
Alternatively, an ETF that concentrates on blockchain-related companies such as the iShares Blockchain Technology UCITS ETF (LSE:BLKC) will likely demonstrate some correlation to crypto prices.
It is important to note, though, that there are thousands of cryptocurrencies that aren’t necessarily correlated with one another’s price movements. Proxies like these tend to be correlated with Bitcoin as the most well-known cryptocurrency (MARA and MicroStrategy especially so given their businesses are directly linked to Bitcoin in particular).
In the US, investors can buy ETFs that directly track the spot price of Bitcoin and Ether. At present the FCA doesn’t allow individual investors to buy such ETFs, but this is one area that may come up for review during its consultation process.
Even through vehicles like these, however, crypto investing is incredibly risky. It is a highly volatile asset class, and investors should be prepared to lose all the money they put in, regardless of whether or not they fall victim to a scam.
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