Cryptoassets

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

Before you invest in cryptoassets you should be aware of the following:

Update: cryptoasset registration – what you need to do 

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. UK cryptoasset businesses are required to comply with the Money Laundering Regulations (MLRs) and register with us. 

Firms that did not submit an application by 15 December 2020 will not be eligible for the Temporary Registration Regime. They will need to return crypto assets to customers and stop trading by 10 January 2021. 

What you need to do:

Step 1: Check if the firm you are using is on our Register or list of firms with temporary registration.  

Step 2: If they are not, ask them whether they are entitled to carry on business without being registered with the FCA. 

Step 3: If they are not, we suggest withdrawing your cryptoassets and/or money. This is because the firm is operating illegally if it did not cease trading by 9 January 2021.  

We expect firms to act in your best interests and they may need to seek their own legal advice on how to do this as they may be committing a criminal offence from 10 January 2021 by continuing to provide services involving cryptoassets. 

Our regulatory powers do not cover how cryptoasset businesses conduct their business with consumers. Even if a firm is registered with us, we are not responsible under the MLRs 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 the FCA for conduct purposes. For example, under the MLRs it is unlikely that you will have access to The Financial Ombudsman or Financial Services Compensation Scheme, irrespective of whether a firm has temporary or full registration

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. 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.

Page updates

11/01/2021: Editorial amendment what you need to do edited.
16/12/2020: Information added cryptoasset registration
03/09/2020: Editorial amendment style amendment