Crypto firms operating in UK to be subject to sweeping new rules

City regulator will require booming industry to prove its resilience to risk from October next year

Crypto firms operating in the UK will be forced to prove they can weather market shocks and hold capital against risky assets as part of sweeping new rules announced by the Financial Conduct Authority (FCA).

The regulations will increase supervision of the crypto industry, which has so far has faced minimal oversight despite a boom in popularity linked to social media influencers and a legitimisation drive under the US president, Donald Trump.

David Geale, the FCA’s executive director in charge of payments and digital finance, said: “For the first time, we’ve got a comprehensive regulatory framework for crypto in the UK, one that covers how firms trade, how they hold assets, serve consumers and manage risk.”

He said the package of regulations, which will come into force in October next year, “applies the same core principles we use across financial services. So where we see the same risk … we’re looking for the same regulatory outcomes.”

That includes requiring firms to meet capital requirements – meaning they have to build up a financial cushion to help absorb losses linked to risky assets on their balance sheets. Companies will also have to conduct annual stress tests, showing they could withstand major market shocks and economic strain.

However, crypto firms will be given the power to determine how much risk is on their balance sheet, which will dictate how much capital they need to hold.

And unlike the UK’s major banks, which are given specific scenarios by the Bank of England to test their resilience, crypto companies will conduct their own stress tests, based on their internal risk assessments. Those tests will then be handed to the FCA each year.

The regulator has also cut the amount of capital that will be required by some crypto assets – such as stablecoins that are pegged to fiat currency – following pushback by the industry.

The new rules do not completely remove the risks to consumers, who are still warned they can lose all their money if they choose to invest in crypto. But FCA bosses are hoping that increased supervision will curb some of the bad behaviour and questionable business practices that have left people out of pocket.

Geale said: “Consumers have been exposed to real harm from unregulated activity and the regime that we’re putting in place, we believe, addresses that directly.”

He said the regulations should not quash the ambitions of the burgeoning crypto industry. “This is really about giving crypto a solid foundation from which to build,” he said. “Firms have been asking us for regulatory clarity and we think we’ve delivered it.”

Dan Coatsworth, the head of markets at the investment platform AJ Bell, warned that consumers should still be wary.

“Crypto has grown in popularity as a way for people to spread their wealth, but it has also become associated with get-rich-quick schemes and worryingly portrayed on social media as an easy way to make money,” he said. “There is a danger that people aren’t thinking about the safety of their money when looking to gain exposure.

“Regulation provides stronger consumer protection and helps to reduce scams, misleading promotions and losses from poor practices. It can reduce risk but doesn’t remove it completely.”