The Financial Conduct Authority (FCA) is set to launch consultations on the regulation of crypto assets in 2025, and, while some investment professionals have welcomed the move and expect to see an increase in the adoption of crypto assets by wealth and investment managers, others remain cautious about adding this asset class to their portfolios given its “highly volatile nature”.
At present, crypto remains largely unregulated in the UK, despite the latest research from the FCA on consumer attitudes and behaviours showing 12% of UK adults now own some form of crypto, up from 10% in previous years.
On the back of these findings, the FCA has started to share its approach to regulating crypto, publishing an indicative roadmap of key dates for the development and introduction of the UK’s crypto regime.
The roadmap sets out a series of focused consultations through to the prospective launch of final policy statements on the regulation of crypto assets in 2026. According to the FCA, this approach aims to make policy development transparent and help people engage by making the process more manageable and flexible for all.
In a series of roundtable discussions with various stakeholders, the FCA said participants were keen on the idea of an industry-led admissions and disclosures regime that was “proportionate and tailored to different business models”, such as institutional and retail.
Admissions and disclosures “are a crucial aspect of the new crypto regime we’re proposing”, Matthew Long, director of payments and digital assets at the FCA, noted in a blog post. Clear disclosure to investors lies at the centre of global regulatory efforts to improve the integrity of constantly evolving crypto markets, he added.
However, this will also present the FCA with a number of challenges. For example, decentralised crypto assets – those that have no central issuer – would need to rely on publicly available information because compliance with disclosure and due diligence requirements would be more difficult when crypto trading platforms cannot communicate with an issuer.
“Our research results highlight the need for clear regulation that supports a safe, competitive and sustainable crypto sector in the UK. We want to develop a sector that embraces innovation and is underpinned by market integrity and consumer trust,” Long continued.
“We’re committed to working closely with the government, international partners, industry and consumers to help us get the future rules right.”
‘Much-needed clarity’ for market participants
So far, the lack of defined regulations “created uncertainty”, discouraging many firms from engaging meaningfully with digital assets. With the FCA now introducing guidelines on areas such as capital requirements, insider trading protections and trading standards, firms are better positioned to evaluate crypto assets’ opportunities and risks, according to Rahul Bhushan, managing director of Europe at ARK Invest.
“The FCA’s move to outline a clear roadmap for crypto asset regulation is a promising step forward. By setting out transparent rules, the initiative provides much-needed clarity for market participants. This framework not only strengthens market integrity but also builds consumer confidence, which is critical for the long-term growth and credibility of the crypto asset industry.”
For Gus Morison, CEO and founder of AYU, it is understandable that UK investors at all levels are seeking a safe haven for their savings at a time of high inflation, rather than see them whittled away sitting in fiat accounts or low-interest investments.
“We have seen strong interest in digital assets in our family office and hedge fund communities as they seek to allocate a proportion of their holdings to fast-growth digital assets, some of which have increased four-fold in the past four years. It is high time the FCA accepted this trend and regulated to allow the smooth functioning of the crypto industry and to make the UK more attractive to this aspect of financial services.”
Meanwhile, for investment and wealth management firms, having a structured regulatory environment opens the door to more confidently incorporating crypto assets into client portfolios, added Bhushan.
“The inclusion of crypto assets in portfolios brings potential benefits, including diversification and access to an innovative, fast-developing market. As these regulations take shape, we expect to see cautious but steady growth in the adoption of crypto assets by IM and WM firms, ensuring their approach aligns with compliance standards while protecting client interests.”
Regulatory landscape ‘still evolving’
However, Paul Waterman, partner at GSB Wealth, said that while cryptocurrencies continue to captivate attention and experience growth, as wealth planners, they remain cautious about incorporating them into comprehensive financial strategies at this stage.
“These digital assets are primarily used as a medium of exchange or a store of value. However, given their highly volatile nature, their inherent value is still questionable. Furthermore, with the regulatory landscape around cryptocurrencies still evolving, the limited recourse available for investors presents additional risks.”
According to research from the Atlantic Council, 2024 has been a critical year for crypto asset regulation, with 70% of the countries they reviewed in the process of making substantial changes to their regulatory framework.
In the UK, the FCA became responsible for regulating crypto asset promotions in October 2023, acting against firms illegally promoting to UK consumers. This includes issuing 1,702 alerts and taking down over 900 scam crypto websites and over 50 apps. But, to date, anti-money laundering and marketing are the only means of regulatory power the FCA has over crypto assets.
“The approach for wealth firms should be centred on ensuring that clients’ financial goals are met while managing risk,” Waterman continued. “GSB believes in data-driven decision-making and strives to remove emotion from the investment process. While we acknowledge the potential of the crypto space, we feel that there is insufficient empirical evidence to justify fully integrating this asset class into client portfolios at this time.”
Crypto assets “are unsuitable for many investors” because of extreme volatility, agreed Dan Coatsworth, investment analyst at AJ Bell, who also accused the FCA of “dragging its feet” in developing regulation – something which he described as “long overdue”.
“Research last year from the FCA found 46% of new investors hold crypto assets. Many were motivated to invest in high-risk assets for emotional reasons, such as wanting some excitement or for a novelty factor. This rush to high-risk investing has a worrying underbelly to it, with half of those buying these assets having at least one characteristic of financial vulnerability, or no or low appetite for investment risk.”
Coatsworth urged the government and FCA to speed up the regulation of cryptocurrencies to avoid investors being caught out if the price of crypto assets like bitcoin “blows up”. But, while news of a proper regulatory framework next year could act as a turning point, he also cautioned that crypto assets “are as far removed from a sleep-at-night investment as you can get”.
It seems, then, that while the regulatory landscape remains in flux, and a Donald Trump-led government bullish on cryptocurrency has yet to take the reins, investors will perhaps largely stay on the outside looking in.
