The Financial Conduct Authority (FCA) has unveiled its roadmap to fully regulate crypto assets by 2026, aiming to create a “safe, competitive and sustainable” environment for cryptocurrencies in the UK. This planned regulation is intended to provide more clarity and confidence, potentially encouraging innovation and growth in the sector. But what could this mean for other financial areas, such as mortgages?
FCA’s Crypto Regulation Roadmap
The FCA’s approach to regulating crypto assets will include a series of consultations and discussions spread across the next couple of years. These will focus on critical areas like market abuse, stablecoins, custody of assets, and prudential elements. The regulator plans to finalise the policy framework by 2026. This move is seen by many as an attempt to catch up with existing regulatory frameworks in the EU and US, creating more structure for a previously unregulated market. The EU’s Markets in Crypto Assets Regulation (MiCA) came into effect in June 2023, and the US is also taking steps to clarify its regulatory stance. By introducing a comprehensive regulatory framework, the FCA aims to create a level playing field for the UK in this emerging financial sector.
Currently, the unregulated nature of crypto assets means they aren’t covered by protections like the Financial Services Compensation Scheme (FSCS) or the Financial Ombudsman Service (FOS). This lack of regulation presents substantial risks to investors, who may find themselves without recourse if they fall victim to scams or the high volatility associated with crypto investments. With the rise in crypto ownership—now at 12% of UK adults—the FCA aims to reduce these risks by establishing clear guidelines and offering better consumer protections. This includes addressing misinformation around financial protections, as many investors mistakenly believe they are covered by traditional safeguards. The hope is that by providing a clear set of rules, the crypto market will become safer for consumers, allowing for more responsible participation.
The FCA’s roadmap will kick off with discussion papers on market abuse and admissions standards, starting in Q2 2024. These will be followed by consultation papers covering topics like stablecoins, custody of assets, and prudential standards during the first half of 2025. The final policy statements are expected in 2026, providing a comprehensive framework for market participants. Such structured regulation is likely to foster greater confidence, not just among individual investors but also among institutional players who have so far remained on the sidelines due to regulatory uncertainty.
What Could This Mean for Mortgages?
So, how does this move towards regulating crypto impact mortgage brokers and the mortgage market as a whole? With the growing popularity of cryptocurrencies, it is not uncommon for potential homebuyers to have some of their savings or investments in crypto. However, the volatile nature of crypto assets has made traditional mortgage lenders wary of accepting these as proof of funds. Without regulation, many lenders view crypto wealth as too unpredictable to factor into deposit calculations, primarily due to its extreme price fluctuations and the perceived risks of illicit activities.
The FCA’s regulation roadmap might change this perception. A clear regulatory framework could make cryptocurrencies a more acceptable form of wealth, giving lenders greater confidence in accepting them as part of a deposit. This change could broaden options for borrowers who hold significant amounts in crypto, potentially easing the mortgage application process. However, it’s still likely that lenders will proceed cautiously, requiring proof of stability and liquidity when considering crypto assets as part of a mortgage application. Even with regulation, lenders may impose conditions, such as requiring crypto to be converted into fiat currency to minimise the risk associated with volatility.
The potential for regulated crypto assets to be used in mortgage applications represents a significant shift in the financial landscape. If cryptocurrencies are recognised as legitimate assets under a regulated framework, this could open up new possibilities for borrowers. For example, a borrower who has accumulated considerable wealth in Bitcoin or Ethereum might be able to use those holdings more transparently as part of their deposit. This could particularly benefit first-time buyers or those who have chosen to invest in crypto rather than more traditional savings accounts.
The Mortgage Broker’s Perspective
For mortgage brokers, this evolving landscape brings both opportunities and challenges. Brokers will need to stay informed about the changes and understand how they impact different types of buyers. Regulation could lead to increased client queries around how to leverage crypto for home purchases—a subject currently fraught with uncertainty. Brokers who are proactive in understanding these changes could find themselves in a position to offer unique value to clients looking for ways to incorporate their crypto assets into their property purchasing plans.
As brokers, understanding the nuances of crypto investments and their potential role in mortgage deposits could be a differentiator. Educating clients on how the FCA’s regulatory roadmap may influence their borrowing capacity or deposit requirements could position brokers as valuable advisors in navigating the shifting financial terrain. Clients will need guidance on how the changing regulations might affect their eligibility and the steps required to convert or declare crypto assets as part of their overall financial profile. Brokers who can offer this guidance will stand out in a competitive market.
In addition, brokers must be mindful of the inherent risks in cryptocurrencies, even under a regulated environment. Lenders may still require assurances, like converting crypto into fiat currency, before it can be considered in mortgage applications. Therefore, part of a broker’s role will involve helping clients understand the complexities and whether using crypto assets for their deposit is in their best interest. Brokers may also need to liaise with lenders to understand their specific requirements and provide a realistic assessment to clients on whether their crypto holdings will be accepted.
Crypto volatility remains a key concern. Even if regulation brings some stability to the market, the price swings associated with cryptocurrencies could still pose challenges for borrowers and lenders alike. Brokers will need to educate clients about the implications of these fluctuations and the potential risks involved. For instance, a sudden drop in the value of a crypto asset could mean a deposit that was previously sufficient is no longer adequate, complicating the mortgage approval process. Having a well-informed broker to navigate these potential pitfalls will be crucial for clients looking to use crypto as part of their home-buying journey.
How Banks Currently View Crypto for Mortgages
At present, many banks are hesitant to accept deposits sourced from cryptocurrencies. The lack of regulation means there are significant risks involved—not just from the volatility of crypto prices but also from concerns over the origin of funds, such as money laundering risks. The unpredictable nature of cryptocurrencies makes it difficult for banks to assess the true value of a potential borrower’s assets, leading many to prefer more traditional forms of proof of funds. As the FCA establishes a regulated framework, we may see a shift in banks’ policies, potentially making it easier for crypto holders to use their assets in mortgage processes.
Until that point, banks are likely to remain cautious, and most borrowers will need to convert crypto holdings into a traditional currency well ahead of making a mortgage application. This is where brokers can add value—by guiding clients through the necessary steps and helping them understand the timelines involved in converting crypto assets. Brokers can also help clients determine the optimal time to convert their crypto, taking into account market conditions and the need for stability in the value of their deposit.
It is worth noting that even with regulation, not all banks may choose to accept crypto-derived deposits. Each financial institution will develop its own risk appetite and policies regarding crypto, which means brokers will need to stay updated on which lenders are more open to crypto assets and under what conditions. This knowledge will be crucial for advising clients effectively and ensuring a smoother mortgage application process.
Looking Ahead
The FCA’s announcement of a comprehensive crypto regulation roadmap is a positive step towards greater financial inclusion and security for crypto investors. While it may take until 2026 for the full framework to be in place, mortgage brokers and lenders should prepare for a future where cryptocurrencies might be more formally recognised as part of the financial ecosystem. This recognition could open up new opportunities for borrowers and help integrate the crypto market with more traditional financial products like mortgages.
For now, the key for mortgage brokers will be to stay informed and educate clients about both the opportunities and risks that come with using crypto in mortgage applications. As the landscape changes, the ability to navigate these new financial tools will be increasingly important, providing an opportunity to stand out in a competitive market. Brokers who can effectively bridge the gap between the crypto world and the traditional mortgage process will likely find themselves in high demand.
Additionally, the introduction of regulation could bring about new mortgage products specifically designed to cater to clients with significant crypto holdings. Brokers who are well-versed in crypto could help shape these products by providing valuable insights into what potential borrowers need and expect. The collaboration between lenders, regulators, and brokers will be crucial in ensuring that these products meet the needs of the market while maintaining financial stability and security.
The crypto regulation journey will not be without its challenges, but it represents an important evolution in how financial markets adapt to new technologies. By embracing these changes, mortgage brokers can play a key role in helping clients navigate an increasingly complex financial landscape, ensuring that they can make informed decisions about their assets and their futures.
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Disclaimer:
This article is for general guidance purposes only and does not constitute legal, financial, or professional advice. Mortgage products and their terms can vary, and it is important to seek advice from a qualified, regulated professional who can assess your individual circumstances. Please ensure you consider your unique needs before making any financial decisions.
While every effort is made to ensure that the information provided on this blog is accurate and up-to-date, we do not guarantee its completeness or accuracy. The mortgage market can change rapidly, and the information on this blog may become outdated. We recommend verifying any information before acting on it and seeking tailored advice.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
