The UK has set out its vision for the future of cryptoassets, publishing draft legislation aimed at fostering innovation while simultaneously bolstering consumer protection. Announced during UK Fintech Week at a major summit in London, the new rules signal a significant step towards integrating the burgeoning crypto industry within the established financial regulatory framework.
Chancellor of the Exchequer, Rachel Reeves, spearheaded the announcement, emphasizing the government’s commitment to making Britain “the best place in the world to innovate – and the safest place for consumers.” The new regulations directly target firms offering services for cryptoassets like bitcoin and ethereum, bringing crypto exchanges, dealers, and agents within the regulatory perimeter. This move seeks to clamp down on illicit activities and provide a clearer, safer environment for investors.
The urgency for such regulation is underscored by the increasing adoption of cryptoassets in the UK. Recent data from the FCA indicates that approximately 12% of UK adults owned or had owned crypto in 2024, a significant jump from just 4% in 2021. This rapid growth has unfortunately been accompanied by instances of consumers being exposed to risky ventures and fraudulent schemes, highlighting the need for robust safeguards.
Under the proposed legislation, crypto firms operating in the UK will be required to adhere to clear standards mirroring those in traditional finance, focusing on transparency, consumer protection, and operational resilience. This aims to instill greater investor confidence in the crypto market and encourage responsible growth within the sector, aligning with the government’s broader Plan for Change to drive economic expansion.
International collaboration
The Chancellor also highlighted ongoing discussions with the United States regarding the responsible growth of digital assets. The commitment to utilize the UK – US Financial Regulatory Working Group for continued engagement underscores the importance of international cooperation in regulating a global phenomenon like cryptoassets. Discussions in Washington, including exploring a transatlantic sandbox for digital securities proposed by SEC Commissioner Hester Peirce, indicate a forward-thinking approach towards cross-border collaboration in fostering innovation.
The government’s commitment to publishing its first-ever Financial Services Growth and Competitiveness Strategy on July 15, with Fintech identified as a priority sector, further reinforces the importance of these new crypto regulations within the broader economic landscape. The promise to bring forward final cryptoasset legislation at the earliest opportunity, following industry feedback on the draft provisions, suggests a pragmatic approach to implementation.
The UK’s new cryptoasset regulations represent a significant step towards providing clarity, security, and fostering growth within the digital asset space. By aiming to protect consumers while supporting legitimate innovation, the government hopes to solidify the UK’s position as a leading hub for Fintech and digital asset technologies. The effectiveness of these regulations will be closely watched by both the industry and consumers as the final legislation takes shape.
Summary of the Policy Paper on the Draft Cryptoasset SI
The policy paper provides commentary on the draft Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025 (the SI). Its aim is to explain the Treasury’s intended policy outcomes for the SI’s provisions and how these provisions seek to achieve them.
Note the draft SI is subject to change based on technical checks for errors, oversights, or unintended consequences in the legal drafting.
Key background and policy intent
The SI stems from the Treasury’s October 2023 proposals for a comprehensive financial services regulatory regime for cryptoassets, including stablecoins. The core objective is to create new regulated activities for cryptoassets (like operating trading platforms) requiring FCA authorization for firms providing related services in or to the UK. This will be supported by admissions and disclosures, and market abuse frameworks (to be published later).
Initially, the proposals also included amending the Payments Services Regulations 2017 (PSRs 2017) to regulate payments using UK-issued stablecoins. However, the government has decided not to proceed with amending the PSRs 2017 at this time, meaning stablecoin payments will remain unregulated for now, although the government remains open to addressing this in future payments reforms.
Scope of the Draft SI
This draft SI focuses specifically on:
- Amending the Regulated Activities Order (RAO):
- Defining “qualifying cryptoassets” (fungible and transferable, including stablecoins, but excluding “specified investment cryptoassets” and tokenized e-money/deposits) and “qualifying stablecoin” (fiat-referenced stablecoins aiming for stable value through fiat or fiat and other asset backing).
- Classifying these as “specified investments” under FSMA.
- Specifying new regulated activities related to these assets, requiring FCA authorization:
- issuing “qualifying” stablecoins in the UK (offering, redemption, maintaining value).
- safeguarding (“custody”) of qualifying cryptoassets and tokenized securities/contractual investments.
- operating a qualifying cryptoasset trading platform (exchange for other cryptoassets or money).
- dealing in qualifying cryptoassets as principal (including lending/borrowing).
- dealing in qualifying cryptoassets as an agent.
- arranging deals in qualifying cryptoassets (including lending platforms).
- qualifying cryptoasset staking (including liquid staking, but issuance of liquid staking tokens falls under dealing).
- Notably, the draft SI does not include special provisions for Decentralized Finance (DeFi), with authorization requirements depending on whether a sufficiently controlling party exists.
- Amending FSMA: Setting the geographic perimeter for the new regulated activities, generally requiring authorization in the UK for firms dealing with UK retail consumers (directly or indirectly), safeguarding assets in the UK or for UK consumers, and issuing stablecoins from a UK establishment. There are exceptions for overseas firms dealing solely with UK institutional clients and for safeguarding directed by an authorized firm.
- Amending the Financial Promotion Order (FPO): Aligning the definition of “qualifying cryptoasset,” inserting the definition of “qualifying stablecoin,” and adding new controlled activities: safeguarding, operating trading platforms, and staking. Importantly, it removes the temporary provision allowing MLR-registered crypto firms to approve their own financial promotions.
- Making consequential amendments to the Money Laundering Regulations (MLRs): Ensuring that FCA-authorized firms for the new cryptoasset activities will not need to additionally register under the MLRs but will still be subject to its other requirements.
- Other consequential amendments: Clarifying that qualifying stablecoin backing assets are not AIFs or CIS, distinguishing qualifying stablecoins from tokenized deposits and e-money through amendments to the Electronic Money Regulations 2011.
- Transitional arrangements: Requiring the FCA to set a period for advance authorization applications and outlining a process for firms already operating but failing to secure authorization to orderly wind down their UK business over a maximum two-year period.
Call for technical comments
The Treasury is seeking technical comments on this near-final draft SI by May 23, 2025, specifically focusing on changes needed to ensure the instrument achieves the stated policy intent outlined in the paper. Comments should be sent to cryptoasset.legislation@hmtreasury.gov.uk .
The paper also includes information on the processing of personal data of respondents and contact details for further inquiries and data protection rights. It references previous consultations and a keynote address providing further context on the government’s approach to cryptoasset regulation.
