In January this year the Financial Conduct Authority became the supervisor for firms carrying our certain cryptoasset activity, specifically overseeing anti money laundering and countering terrorist financing.
But in an update today the regulator said it had not been able to assess and register all firms which had applied for registration since then.
The FCA pointed to the "complexity and standard" of the applications received and the pandemic restricting its ability to visit firms as originally planned.
The City watchdog has therefore established a temporary registration regime to allow existing cryptoasset firms, which had applied to be registered with the FCA before the deadline of December 16 but whose applications were still being assessed, to continue trading.
But the FCA urged customers of cryptoasset firms which should have applied to the FCA, but had not done so, to withdraw their cryptoassets or money before January 10, 2021.
Firms which qualify under the temporary registration regime will be able to continue trading after January 9 next year until July 9 pending the result of their application with the regulator.
The FCA said: "Firms that did not submit an application by December 15, 2020 will not be eligible for the temporary registration regime.
"They will need to return cryptoassets to customers and stop trading by January 10, 2021.
"Firms that do not stop trading by that date are at risk of being subject to the FCA’s criminal and civil enforcement powers."
Cryptoassets are often synonymous with the darker side of currency with links to criminal activity, but their legitimate use is on the rise.
But many cryptoassets are well known to be highly speculative and at risk of losing value quickly.
The FCA does not have consumer protection powers for the cryptoasset activities of firms and even if a firm is registered with the regulator the latter has stated it is not responsible for ensuring cryptoasset businesses protect client money.
The regulator today warned it was unlikely consumers with cryptoassets will be able to access the Financial Ombudsman Service or Financial Services Compensation Scheme, irrespective of whether a firm had temporary or full registration.
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