Crypto fraud: will the new UK Cryptoasset Regulations help?

The Financial Conduct Authority's (FCA) regulation of financial services firms in the UK is due to be extended to entities conducting cryptoasset-related activities.

By extending the scope of the FCA's responsibilities and powers, the government intends for the UK to become "a place where crypto asset firms have the clarity needed to invest and innovate, and where customers have the protections necessary for confidently using [cryptoasset] technologies".[1]

Whilst the extension of the FCA's oversight will set (and raise) standards of conduct for all authorised crypto platforms operating in the UK (and in many areas provide new means of redress in respect of their operations and conduct), it will not necessarily assist individuals who are defrauded by unauthorised firms, bogus platforms, or criminals utilising the services of innocent exchanges.  Crypto users' discernment and vigilance will remain vital tools in the prevention of crypto-related frauds.

The legal basis

Key to the FCA's current regulatory powers are as follows:

1. The 'general prohibition' in section 19 of the Financial Services and Markets Act 2000 (FSMA), which prohibits someone from carrying on a 'regulated activity' in the UK unless they are authorised to do so, or exempt. Those 'regulated activities' are defined by the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001/544 (Regulated Activities Order).

2. The 'financial promotion prohibition' in section 21 of FSMA, which prohibits someone from promoting financial services without authorisation, as also governed by the Financial Services and Markets Act 2000 (Financial Promotion) Order and, since October 2023, also the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023 specifically regarding certain "qualifying crypto assets" (Financial Promotion Order).

The Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2025 (Cryptoasset Regulations) will bring certain activities relating to cryptoassets expressly within the scope of the FCA's regulatory perimeter. 

Which cryptoasset-related activities will be regulated by the FCA?

The Cryptoasset Regulations look set to require FCA authorisation to be obtained for the following activities:[2]

• Issuing qualifying stablecoins in the United Kingdom.
• Safeguarding of qualifying cryptoassets and relevant specified investment cryptoassets.
• Arranging for another person to safeguard qualifying cryptoassets or relevant specified investment cryptoassets.
• Operating a qualifying cryptoassets trading platform.
• Dealing in qualifying cryptoassets as principal.
• Dealing in qualifying cryptoassets as agent.
• Arranging (bringing about) deals in qualifying cryptoassets.
• Making arrangements with a view to transactions in qualifying cryptoassets.
• Qualifying cryptoasset staking.

Crypto firms, exchanges, and platforms carrying out the above activities will need to apply to become FCA authorised between 30 September 2026 and 28 February 2027 to ensure their applications are processed in time for the commencement of the new regulatory regime on 25 October 2027.[3]

Will the Cryptoasset Regulations assist victims of Crypto Fraud?

The Cryptoasset Regulations will set (and raise) standards of conduct for all authorised crypto platforms operating in the UK – including in relation to market abuse, the use and disclosure of insider information, and market manipulation – and provide new means of redress in respect of their operations and conduct.  To that extent, they will therefore be a welcome addition in the fight against fraud and offer welcome protection to UK consumers.  However, as with any regulatory regime, they will not be able to provide a complete answer.

1. The Cryptoasset Regulations will not assist UK-based individuals who are defrauded by (or using) un-authorised, bogus, or non-existent firms/platforms, whether based in the UK or overseas.

   Victims of cryptoasset fraud are often duped into using online platforms which look convincingly real but in fact are not.  The Cryptoasset Regulations will not, in and of themselves, be able to prevent this from happening.

   However, the Cryptoasset Regulations will give the FCA more teeth to shut down such platforms and pursue those responsible for them (if they can be found).  Additionally, UK-based crypto investors will better be able to protect themselves from fraudulent platforms by checking whether they are authorised to operate in the UK using the FCA's 'Firm Checker' service: https://www.fca.org.uk/consumers/fca-firm-checker. 

   Individuals will obviously still need to guard against the possibility that a firm / platform is impersonating a regulated entity, but at least the requirement to register and be authorised will help in identifying whether the platform in question is legitimate.

2. The Cryptoasset Regulations will not stop fraudulent conduct carried out using FCA authorised platforms.

A significant amount of crypto fraud involves blockchain transactions facilitated via legitimate crypto platforms – often without any fault on the part of the plaftorm.  Romance baiting and investment scams, as well as rug pull scams, typically involve criminals inducing their victims to authorise a crypto platform to conduct a transaction using their wallet.  Stolen crypto is also often then directed through multiple further wallets including those held by unsuspecting platforms. 

The Cryptoasset Regulations will increase the onus on authorised platforms to have adequate processes in place for e.g. transaction monitoring and complaints handling (per the FCA's Handbook).  This will not obviate the need for individuals to exercise caution in respect of their dealings to seek to ensure they are not falling prey to a fraudulent scheme, but should increase the prospects of suspicious transactions being flagged and stopped by authorised platforms. 

As crypto firms, platforms, and exchanges dealing with UK-based customers become FCA-authorised entities, their conduct in the UK will be regulated in much the same way as traditional financial institutions such as banks. 

Fraudsters have of course long manipulated victims into parting with their cash using the traditional banking system.  The FCA regulated world of crypto will be no different, albeit the more speculative nature of crypto investments will continue to provide ample opportunities for fraudsters to prey on unsuspecting individuals, even while making use of regulated platforms to facilitate criminal activity.

As such, while the Cryptoasset Regulations will provide a welcome degree of certainty for cryptoasset businesses, an increase in standards in order to obtain and maintain FCA authorisation, and some protection for UK consumers wishing to trade and transact in cryptoassets, they are by no means a complete answer.  Discernment and vigilance on the part of UK consumers wishing to trade and transact in cryptoassets will remain vital in the prevention of crypto-related frauds.