Find out about the regulation of cryptoassets and the risks of investing in cryptoassets such as Bitcoin and Litecoin.
Cryptoassets is a broad term and covers many different types of products. The most popular forms of cryptoassets include tokens like Bitcoin and Litecoin.
We call these exchange tokens, but they are sometimes referred to as cryptocurrencies, cryptocoins, or payment tokens.
Exchange tokens use a distributed ledger technology (DLT) platform and are not issued or backed by a central bank or other authority. They are not underpinned by any currency or other asset and are not considered to be a currency or money.
Cryptoassets 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 cryptocurrency equivalents) are not currently regulated in the UK. This means the transfer, purchase and sale of exchange tokens, all currently fall outside our regulatory remit.
Some types of cryptoassets may be regulated depending on how they are structured. For instance, some tokens may provide rights such as ownership, repayment of a specific sum of money, or entitlement to a share in future profits. We call these security tokens and they will fall within our regulatory remit.
Some products may also be linked to cryptoassets or derive their value from them. Derivatives that feature cryptoassets as the underlying investment will also fall under our remit. Firms who carry out any regulated activity will require FCA authorisation. We have previously published a warning about the risk of Contracts for Differences (CfDs) with cryptoassets as the underlying investment.
Find out more about cryptoasset CfDs.
If you invest in unregulated cryptoassets, you may not have access to the Financial Ombudsman Service or the Financial Services Compensation Scheme if something goes wrong. You can check whether firms carrying on any of the activities above are authorised on our Register.
Our role under the AML/CTF regime
From January 10, 2020, we have been given new regulatory powers to supervise how cryptoasset businesses manage the risk of money laundering and counter-terrorist financing. These powers do not cover how cryptoasset businesses conduct their business with consumers.
You will not therefore have the same protections in relation to crypto asset activities carried out by that business as you may have with activities supervised by us for conduct purposes.
Initial Coin Offerings
Initial Coin Offerings (ICOs) can be used to create decentralised networks and/or can be a digital way of raising funds from the public 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.
Investing in cryptoassets
We have received a high number of reports of scams involving cryptoassets. Find out how to protect yourself from this type of scam.
As part of the UK Cryptoasset Taskforce, we are undertaking a range of activity to protect consumers from the risks that cryptoassets pose, while encouraging responsible development of legitimate DLT and cryptoasset-related activity. Find out more about our approach to cryptoassets.
How do we regulate cryptoasset businesses?
Many activities carried on by businesses involving cryptoassets (eg exchanging cryptoassets to normal currency, such as UK pounds and cryptoassets themselves), are not currently regulated in the UK. This means the way a business buys and sells cryptoassets, falls outside our remit.
If you buy cryptoassets, you are unlikely to have access to the Financial Ombudsman Service (the Ombudsman Service) or the Financial Services Compensation Scheme (FSCS) if something goes wrong.
Some types of cryptoassets may be regulated depending on how they are structured:
- ownership position
- repayment of a specific sum of money
- entitlement to a share in future profits
We call these security tokens and they will fall within our regulatory remit. Read more about security tokens.
From January 10, 2020, the FCA will be the anti-money laundering and counter terrorist financing (AML/CTF) supervisor for businesses carrying on certain activities involving cryptoassets.
It is important to clarify that we will only be responsible for supervising cryptoassets businesses in relation to the policies, controls and procedures a business has in place to mitigate and manage their AML/CTF risk.
We will not be responsible for supervising these businesses for the way they conduct business with consumers, and will not be responsible for ensuring a cryptoasset business safeguards client assets, amongst other things.
As the FCA supervises cryptoassets businesses under the Money Laundering Regulations, am I protected if something goes wrong?
A cryptoasset business that is carrying on the relevant cryptoasset activities will have to be registered with the FCA under the Money Laundering Regulations (MLRs). We will only be looking at their compliance with these regulations.
This means that if you buy cryptoassets, you may not have access to the Ombudsman service or FSCS if something goes wrong.
If the cryptoasset business that you are in business with goes bust, there is a significant risk that you may not get anything back. You are also unlikely to be protected by the Ombudsman Service or FSCS in this case.
Are cryptoassets risky?
Cryptoassets are considered very high risk, speculative purchases. If you buy cryptoassets, you should be prepared to lose all your money. There are a number of factors you should take into account before making a decision to buy cryptoassets:
- the crypto marketplace is a target for fraud and scams and therefore extra caution from consumers is needed. 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 exercise extreme caution and be aware your money may be lost. The FCA ScamSmart website provides some tips as to how to avoid and spot investment scams.
- you should be very careful if you’re considering buying cryptoassets. We would urge consumers to ensure that they check and carefully consider the cryptoasset business – you should know who you are dealing with - and whether a cryptoasset is suitable, taking into account the risk profile of such products. For example, when entering into a business relationship with a cryptoasset business, you may wish to consider whether it is located in the UK or if it is a business that 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.
- 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 seek financial advice before making a decision to invest.