The UK financial watchdog has called for further clarity in the regulation of cryptoassets, as it launches a consultation on guidance applicable to the wide sphere of crypto.

The Financial Conduct Authority (FCA) said firms will have a better understanding of whether their activities with cryptoassets such as bitcoin are compliant with regulation as a result of the guidance it receives.

"This is a small but growing market and we want both industry and consumers to be clear what is regulated, and what isn't," said Christopher Woolard, executive director of strategy and competition at the FCA. 

"This is vital if consumers are to know what protections they’ll benefit from and in ensuring we have a market functioning as it should."

The FCA has previously warned consumers and companies alike to approach investing in cryptoassets with caution, as they may be unaware of the lack of current regulatory oversight in the industry. Should they lose their money, consumers are unable to apply for compensation from the Financial Services Compensation Scheme or the Financial Ombudsman Service.

Cryptoassets include digital currencies such as bitcoin and litecoin, but also security tokens and utility tokens. A taskforce on the matter, which included representatives from the FCA, the Treasury and the Bank of England, published its final report last year outlining the potential harms of the industry.

"While cryptoassets have the potential to bring benefits to markets, firms and consumers, there remains considerable risks to markets and consumers," said the FCA in a statement today. 

"This is an important first step in delivering the outcomes of the Cryptoasset Taskforce, as well as in our own work to address the harms from cryptoassets and encourage innovation in the interest of consumers."

Iqbal V. Gandham, chair of self-regulated trade body Crypto UK, said it is "imperative" that the FCA balance protections against consumer harm with a framework which enables the sector to grow.

Kingsley Napsley partner Jill Lorimer added the guidance "will be warmly welcomed by firms who are currently operating in this space, or who seek to do so. A clear regulatory framework is absolutely essential to the UK maintaining its position as one of the most attractive destinations for cryptoasset innovation."