CRYPTO investments are set to be regulated within two years as part of a major shake-up.
The Financial Conduct Authority (FCA) today published proposals for new standards and rules for firms in the sector.
These came just a day after the government also presented draft legislation for cryptoasset companies.
The new rules, which come into force in 2027, are said to make the industry more transparent and make it easier to detect suspicious activity and hold crypto firms to account.
Cryptocurrency is digital money that doesn’t require a bank or financial institution to verify transactions.
It can be used to make purchases or as an investment.
No major UK high street stores accept cryptocurrency at the moment so most people hold it as an investment.
Cryptocurrency is extremely unpredictable and many assets have dropped considerably, although others have risen in value.
Still, the crypto market has surged in popularity in recent years as an alternative investment product.
The market is not currently regulated in the UK, meaning consumers might not get the same level of protection as if they were investing in stocks and shares when things go wrong.
Chancellor Rachel Reeves said: “Bringing crypto into the regulatory perimeter is a crucial step in securing the UK’s position as a world-leading financial centre in the digital age.
“By giving firms clear rules of the road, we are providing the certainty they need to invest, innovate and create high-skilled jobs here in the UK, while giving millions strong consumer protections, and locking dodgy actors out of the UK market.”
City minister Lucy Rigby said Labour wants the UK to be “at the top of the list” for crypto firms looking to grow.
Crypto firms do currently have to register with the FCA under anti-money laundering regulations.
But the changes should provide more protection for consumers and put the UK’s regulation more in line with that in the US.
The regulation was first announced in April this year, with draft legislation set out to protect investors and encourage investment.
Millions of Brits own cryptocurrency, with the average person holding £1,842 in crypto as of November last year.
The FCA says this figure has likely increased since then.
Dan Moczulski, UK managing director or Etoro, told This Is Money: “The move to bring crypto fully into the FCA’s regulatory perimeter has been a long time coming, but it is a welcome step.
“Crypto has matured rapidly, yet regulation has not always kept pace, and investors rightly expect the same level of protection they receive when investing in other financial products.”
What is cryptocurrency?
CRYPTOCURRENCY is a digital payment platform that gets rid of the need to carry physical money.
Unlike traditional money printed by the Government, it exists only in digital form.
It means that crypto users can send and receive money directly without using an intermediary such as a bank.
Some people may find this appealing as it frees them from relying on traditional financial institutions and Government regulation.
But there are currently significant risks as with no banks or central authority to protect you, no one is responsible for helping you if your money is stolen or mishandled.
Plus, it’s generally slower and more expensive to pay with a cryptocurrency than a recognised one such as sterling.
Most people hold crypto as an investment as they expect its value to rise.
Crypto is incredibly volatile – meaning it is high risk but can also be high reward.
To give an idea of how volatile it is, Bitcoin has at times risen by 22% in one day and fallen by 26% on another.
Meanwhile the value of the pound did not change by more than 10% in one day between 2015 and 2024.
Like with all investments, you can make money but you can also lose it as well – and it’s possible you could lose all the money you invest into it.
How the changes will affect your money
The changes mean you’ll have more protection when investing in cryptocurrencies.
However, they don’t come into force until 2027 so until then it’s worth being cautious.
The exact rules are not set in stone yet, but the FCA has said they could include:
- Rules for listing cryptoassets and what firms must tell investors, so people have the facts before they invest
- Measures to stop insider trading and manipulation, so markets are fair
- Standards for crypto exchanges to keep trading safe and reliable
- Requirements for brokers and other middlemen, so they act responsibly
- Making sure the risks are clear when firms offer staking – a service that lets you lock up your crypto for a reward
- Rules to protect both crypto lenders and borrowers
- Financial safeguards for firms, so they can better manage risk
The laws mean crypto firms will be better held to account, so if you lose your money to a scam then you should be able to get help.
This should mean consumers feel more confident to invest in crypto.
