Cryptoassets

Find out about the regulation of cryptoassets (including 'cryptocurrencies' such as Bitcoin and Litecoin) and the risks of investing.

Cryptoassets 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. They are considered very high risk, speculative investments.

If you invest in cryptoassets, you should be prepared to lose all your 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 our Register to find out whether a firm is authorised to carry on any of these activities.

Financial crime prevention

In January 2020, new regulatory powers were introduced to allow us to supervise how cryptoasset businesses manage the risk of money laundering and counter-terrorist financing. 

However, these powers do not cover how cryptoasset businesses conduct their business with consumers. We are not responsible for ensuring cryptoasset businesses protect client assets, among other things

As a consumer, this means you will not have the same protections in relation to cryptoasset activities carried on by that business, as you may have with activities supervised by us for conduct purposes.

If the cryptoasset business that you interact with fails, there is a significant risk that you may not get anything back. You are also unlikely to be protected by the Financial Ombudsman Service or FSCS. 

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. Find out how to protect yourself from this type of scam.
  • 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 us. 
  • 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 are proposing a ban on 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. 

Find out more about our approach to cryptoassets.

Initial Coin Offerings

Initial Coin Offerings (ICOs) can be a digital way of raising funds from the public, or creating decentralised networks, using cryptoassets.

An ICO can also be known as 'token sale' or 'coin sale'.

ICO issuers might accept exchange tokens, like Bitcoin or Ether, in exchange for a proprietary coin or token that is related to a specific firm or project.

ICOs vary widely in design. The digital token issued may represent a share in a firm, a prepayment voucher for future services or, in some cases, offer no discernible value at all.

Often ICO projects are in a very early stage of development. Read more about the risks of ICOs.