The Financial Conduct Authority (FCA) has announced sweeping new regulations for cryptocurrency firms operating in the UK, requiring them to prove resilience to market shocks and hold capital against risky assets from October next year.
New Regulatory Framework for Crypto
David Geale, the FCA’s executive director in charge of payments and digital finance, stated: “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 added that the package “applies the same core principles we use across financial services.”
The regulations increase supervision of an industry that has faced minimal oversight despite a boom in popularity linked to social media influencers and legitimisation efforts under US President Donald Trump.
Key Requirements for Crypto Firms
Companies must meet capital requirements, building a financial cushion to absorb losses from risky assets on their balance sheets. They will also conduct annual stress tests to demonstrate they can withstand major market shocks and economic strain. However, firms can determine their own risk levels, which dictate capital needs, and design their own stress tests based on internal assessments, submitting results to the FCA each year.
The regulator reduced capital requirements for some assets like stablecoins pegged to fiat currency after industry pushback.
Consumer Risks Remain
The FCA warns that the new rules do not make crypto risk-free, and investors can still lose all their money. 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 stressed the regulations should support the industry: “This is really about giving crypto a solid foundation from which to build. Firms have been asking us for regulatory clarity and we think we’ve delivered it.”
Industry Reaction
Dan Coatsworth, head of markets at investment platform AJ Bell, cautioned: “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. There is a danger that people aren’t thinking about the safety of their money when looking to gain exposure.” He noted that “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.”
