UK’s Official Financial Compensation Fund ‘Doesn’t Cover Digital Currencies’

The UK’s Financial Services Compensation Scheme (FSCS) has warned it won’t provide compensation for lost digital currencies such as bitcoin and litecoin.

The FSCS pays compensation of up to £85,000 per account holder if their bank, building society or credit union is unable to pay claims against it.

This usually happens if the financial services firm in question has stopped trading. Mark Oakes, head of communications at FSCS said: 

“FSCS protects up to £85,000 of depositors’ money in savings and current accounts with UK authorised banks, building societies and credit unions. However, virtual currencies are not regulated by the UK regulators, so FSCS does not provide protection in the event of any losses suffered by consumers.”

The FSCS highlighted the European Banking Authority’s (EBA) recent warning to consumers, which detailed the potential risks people are exposed to by using digital currency.

The warning largely focused on the possibility of fraud and theft.

“Consumers should be aware that exchange platforms tend to be unregulated and are not banks that hold their virtual currency as a deposit. Currently, no specific regulatory protections exist in the EU that would protect consumers from financial losses if a platform that exchanges or holds virtual currencies fails or goes out of business,” the EBA said in a statement.

The UK government is yet to reveal its official stance on bitcoin, but HM Revenue and Customs (HMRC – the UK customs and tax department) last month backtracked on its previous classification of bitcoins as vouchers.

Richard Asquith, head of tax at professional services firm TMF Global, recently voiced his belief that HMRC will reclassify bitcoin as a ‘private currency’, but the department avoided addressing these comments.