05/09/2025 | News release | Distributed by Public on 05/08/2025 11:02
Since 2023, the UK government has been engaging with the cryptoasset industry as part of its efforts to develop a regulatory regime for cryptoasset activities and services. In late April and early May 2025, HM Treasury and the FCA published two key documents setting out the government's draft legislation on the new regime and discussing their regulatory priorities.
In October 2023, His Majesty's Treasury (HM Treasury) published proposals for the establishment of a new regulatory regime for cryptoassets. Following further engagement with industry participants, the government confirmed in November 2024 that it would largely move forward with HM Treasury's proposals. The latest publication from HM Treasury includes a draft Statutory Instrument (Draft SI) which, if enacted, would create new regulated activities applicable to certain types of cryptoassets, including fiat-referencing stablecoins. HM Treasury also issued a policy note alongside the Draft SI (the Policy Note).
Separately, the Financial Conduct Authority's (FCA) latest discussion paper on cryptoasset regulation seeks input on a range of issues, including the FCA's approach towards regulating cryptoasset trading platforms (CATPs) and intermediaries, decentralised finance and staking (the Discussion Paper).
Taken together, the Draft SI and Policy Note provide key insights into the UK government's plans as it moves forward with comprehensive regulation of the cryptoasset industry. The FCA's Discussion Paper offers fewer definitive proposals but nonetheless highlights the regulator's views on the areas where the government is inviting further comment from industry participants before formulating draft rules. The main takeaways from the three published documents are discussed below.
Section 19 of the Financial Services and Markets Act 2000, as amended (the FSMA) provides that no person may carry on a regulated activity in the UK unless that person is authorised by the FCA or Prudential Regulation Authority or exempt. This is referred to in the FSMA as the "general prohibition".
Section 22 of the FSMA defines a regulated activity as an "activity of a specified kind" which "relates to an investment of a specified kind" or "is carried on in relation to property of any kind". For this purpose, "specified" means specified by the HM Treasury by statutory instrument. The relevant statutory instrument is the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544), as amended (the RAO). The RAO identifies a range of specified activities, including: (i) dealing in investments as principal or as agent; (ii) advising on investments; and (iii) managing investments. Specified investments comprise, among other things, shares, bonds and other debt instruments, government and public securities, options and futures, contracts for differences, and units in a collective investment scheme.
To date, most cryptoassets do not qualify as specified investments under the RAO. The exception is where a cryptoasset has the characteristics of an existing specified investment, such as conferring on the holder voting rights, rights to receive dividends or coupon payments. These are commonly referred to as security tokens. In addition, derivatives with a cryptoasset as the underlying assets will be caught by one of the existing categories of specified investment.
Activities in relation to cryptoassets that are not security tokens or cryptoasset derivatives are not currently subject to the general prohibition, meaning there is no authorisation requirement. Instead, those operating as cryptoasset exchange providers or as custodian wallet providers have been required to register with the FCA under the UK's anti-money laundering regime since January 2020. Promoting certain types of cryptoassets in the UK has been restricted by the UK's financial promotion regime since 2023.
The Draft SI proposes several important changes to the current UK regime, including:
In its Discussion Paper, the FCA highlights the following key areas of cryptoasset regulation where it is interested in receiving views from industry participants:
In the Draft SI, the starting point is that overseas cryptoasset firms dealing directly or indirectly with UK consumers will need to obtain FCA authorisation if they are engaged in the following activities:
Additionally, firms will be required to obtain FCA authorisation if they are carrying on the following activities in the UK or on behalf of UK consumers:
The government has previously stated it does not intend to extend the overseas persons exemption to cryptoasset services. It is therefore unlikely that unauthorised overseas firms will be able to accept reverse solicitation approaches from UK retail customers.
However, the Draft SI proposes the following exemptions to these authorisation requirements, with the general aim being to avoid situations where an 'ever-growing chain of firms' need to obtain FCA authorisation:
At this stage, the Draft SI does not currently include specific provisions relating to decentralised finance. HM Treasury suggests that there will not be an authorisation requirement where specified activities are undertaken on a 'truly decentralised basis' and no one person is undertaking the activity in the course of business. However, the FCA will have the discretion to determine if there is a 'sufficiently controlling party' which then needs to become authorised. We would expect the FCA to provide further guidance on this subject in the coming months.
Further draft regulations will also be proposed in due course to address topics relating to market abuse, disclosure and admissions to trading.
The proposals from HM Treasury are at a near-final stage, and it is expected that any changes at this point will be relatively limited. Industry participants can provide technical comments on the Draft SI until 23 May 2025. Cryptoasset firms will benefit from a transition period prior to the new regime coming into force, during which firms should obtain the permissions they may require to continue their UK operations.
The FCA's deadline for comments on its Discussion Paper is 13 June 2025. A detailed consultation process will take place if the FCA plans to adopt any of the measures mentioned in the Discussion Paper in its final rules. Firms should ensure they are monitoring regulatory developments in the UK, as it is likely that the significant changes summarised above will be phased in during 2025 and 2026.