Crypto firms operating in the UK will be forced to prove they can weather market shocks and hold capital against risky assets under sweeping new rules announced by the Financial Conduct Authority (FCA).
The regulations increase supervision of an industry that has so far faced minimal oversight despite a boom in popularity tied to social media influencers and a legitimisation drive under US President Donald Trump.
A comprehensive framework
David Geale, the FCA’s executive director for payments and digital finance, framed the package as a first for the country.
He 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.”
The rules, which take effect in October next year, apply the same core principles used across financial services.
Capital and stress tests
Firms will have to meet capital requirements, building up a financial cushion to absorb losses from risky assets on their balance sheets.
They will also conduct annual stress tests demonstrating they could withstand major market shocks and economic strain.
Unlike major UK banks, which receive specific scenarios from the Bank of England, crypto companies will run their own tests based on internal risk assessments before handing them to the FCA each year.
Following industry pushback, the regulator cut the capital required for some assets, such as stablecoins pegged to fiat currency.
Risks remain
The rules do not remove consumer risk, and investors are still warned they can lose all their money.
Dan Coatsworth, head of markets at AJ Bell, urged caution:
“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.”
Geale said firms had asked for regulatory clarity, adding the framework gives crypto “a solid foundation from which to build.”
