As the UK moves cryptoassets into the regulatory mainstream, advisers need to understand how new FCA rules, stablecoin reforms and tighter protections will reshape client risk, opportunities and obligations. In the following overview for IFA Magazine, David Rankin, Managing Director at Punter Southall Analytics, gives us some pointers.
Last month, more than $12 million was frozen and 20,000 victims were identified in an NCA-led international operation targeting cryptocurrency and investment scammers[i]. One UK victim is thought to have lost more than £52,000.
It is a timely reminder that crypto is no longer a niche concern. Clients may already have exposure through cryptoassets, stablecoins, online trading platforms or digital investment schemes, often without realising these are not regulated like mainstream financial products.
For years, much of the UK crypto market has sat outside the traditional regulatory perimeter, but this is about to change, with the UK government and Financial Conduct Authority (FCA) introducing a new regime to strengthen consumer protection, improve market confidence and give firms and investors greater legal certainty.
Why regulation is changing
Cryptoassets such as Bitcoin and Ethereum have grown rapidly in popularity over the past 10 to 15 years, but regulation has struggled to keep up. The FCA recently acknowledged that, under the current regime, crypto has been “largely unregulated except for financial promotions and financial crime purposes.”[ii]
Most crypto trading activity has therefore sat outside the regulatory perimeter, leaving consumers with limited protection, firms without a clear authorisation regime, and uncertainty over which activities are legally regulated.
As the market expands, this gap is becoming harder to ignore. High-profile failures and frauds, from the collapse of the cryptocurrency exchange, FTX in 2022[iii] to the Cryptoqueen OneCoin Ponzi scheme[iv], have exposed the risks facing investors
The new regime
The UK government has introduced a new legal framework under the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026, expected to be fully rolled out in 2027. The regime will bring crypto activities into the regulated financial services perimeter, require firms to obtain FCA authorisation, and introduce rules covering trading platforms, custody, stablecoin issuance, staking and other services. The aim is to treat crypto more like traditional financial products.
A key area of reform is stablecoins, cryptocurrencies designed to maintain a stable value, often linked to fiat currencies such as sterling or the US dollar. Stablecoins are increasingly used for payments, trading between cryptoassets and decentralised finance. Because they resemble “normal” money, regulators see them as particularly important.
Under the proposed regime, stablecoins will be regulated as “money-like instruments” rather than investments. Issuers will be expected to hold sufficient backing assets, such as cash or government debt, and allow redemption at face value.
Different regulators may oversee different types of stablecoin, with the FCA responsible for non-systemic stablecoins and the Bank of England overseeing systemic stablecoins. HM Treasury is also proposing amendments to support innovation, particularly in stablecoin-based payment systems.
The regulatory perimeter
One of the biggest challenges has been defining what counts as a regulated crypto activity. The FCA is consulting on detailed “perimeter guidance” to clarify when crypto trading becomes regulated, which firms need authorisation, and how existing financial rules apply to crypto. This matters because many firms and individuals have operated in a grey area. The new guidance aims to remove that ambiguity and provide legal certainty about who and what is covered.
What this means for crypto traders
For individuals who trade crypto, the new regime will bring important changes. Once fully implemented, platforms will need FCA authorisation and must meet governance, risk management and customer protection standards. This should improve protection and reduce the risk of fraud and platform failures.
There should also be greater transparency, with new disclosure requirements and market abuse rules, similar to those in stock markets, designed to make pricing and risks clearer for retail traders. However, regulation may also bring restrictions. Some high-risk products or services may become less available in the UK, and increased compliance costs could be passed on to users.
What about past losses?
The new regime is unlikely to provide automatic retrospective compensation simply because the rules have changed. However, past losses could still be relevant in certain circumstances. Even before the new regime, crypto promotions were regulated. If a trader relied on misleading advertising, they may still have a legal claim to compensation under existing rules. If firms carried out activities that were already regulated, such as derivatives trading, without proper authorisation, traders may also be able to bring a claim.
In conclusion
The UK’s new crypto regulatory regime represents a significant turning point. It aims to bring clarity, protection and credibility to a market that has long operated in uncertainty. For new and existing investors, this could make crypto safer and more accessible. For financial advisers, it creates an opportunity to help clients understand what is changing, what protections may apply, and where risks remain.
[i] https://www.nationalcrimeagency.gov.uk/news/fraudsters-targeting-cryptocurrency-stopped-and-12-million-frozen-in-nca-led-operation-atlantic
[ii] https://www.fca.org.uk/news/press-releases/fca-consults-guidance-uk-future-crypto-regime
[iii] https://www.bbc.co.uk/news/articles/c9wz3wkrdj9o
[iv] https://www.bbc.co.uk/news/articles/c9d1y0z4z9no
