The UK’s new regulatory regime for cryptoassets

HM Treasury is proposing that certain activities when carried on in connection with cryptoassets will become regulated activities for the purposes of the UK Financial Services and Markets Act 2000 (FSMA). This will mean that persons who wish to carry on those activities in the UK by way of business will need to be authorised by the UK Financial Conduct Authority (FCA) – if they are not already authorised – and have permission to carry on those specific activities in connection with cryptoassets. This new regime will build on the current requirements under the Money Laundering Regulations and restrictions on financial promotions relating to cryptoassets.

What are cryptoassets?

A “cryptoasset” is defined in FSMA as being “any cryptographically secured digital representation of value or contractual rights that:

• Can be transferred, stored or traded electronically, and
• That uses technology supporting the recording or storage of data (which may include distributed ledger technology)”

Which cryptoassets will be subject to regulation?

The UK is proposing that “qualifying cryptoassets” – a subset of “cryptoassets” as defined above – will be added to the current list of specified investments in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.

For a cryptoasset to be a “qualifying cryptoasset” it will have to be both fungible and transferable (including for these purposes a cryptoasset which is described as being transferable). The definition includes qualifying stablecoin, but excludes, among other things, specific investment cryptoassets, electronic money and central bank digital currency.

A “qualifying stablecoin” is defined as a qualifying cryptoasset that:

• References a fiat currency, and
• Seeks or purports to maintain a stable value in relation to that referenced fiat currency by the issuer holding, or arranging for the holding of:
  • fiat currency or
  • fiat currency and other assets

irrespective of whether the holding of another fiat currency or asset contributes to the maintenance of that stable value.

The draft statutory instrument includes a clarification that neither qualifying stablecoins nor the assets backing them will constitute “stored monetary value” for the purposes of the E-money Regulations.

Note: The term “asset” is used in preference to the term “currency” to avoid confusion around the classification of the asset. The Bank of England notes that cryptoassets “can’t really be considered a legitimate form of money. This is why central banks refer to them as ‘cryptoassets’ instead of ‘cryptocurrencies’”.

Which activities will be regulated?

The UK proposes requiring authorisation for the following activities when carried on in connection with qualifying cryptoassets:

• Issuing qualifying stablecoin in the United Kingdom
• Safeguarding of qualifying cryptoassets and relevant specified investment cryptoassets
• Operating a qualifying cryptoasset trading platform
• Dealing in qualifying cryptoassets as principal
• Dealing in qualifying cryptoassets as agent
• Arranging deals in qualifying cryptoassets
• Qualifying cryptoasset staking.

Some of these activities are specific to cryptoassets, while others mirror existing regulated activities in relation to other specified investments. However, the draft legislation sets out each as a distinct regulated activity, with associated exclusions (as opposed to simply adding qualifying cryptoassets to the list of specified investments linked to the relevant existing regulated activities). This reflects the fact that the current regulatory framework has been adapted in a number of respects to reflect the unique features of cryptoassets. 

Nevertheless, where a regulated activity in relation to qualifying cryptoassets mirrors an existing regulated activity, it is likely that existing case law and FCA guidance on the scope of that activity will also apply to the corresponding activity when carried on in connection with qualifying cryptoassets, unless it is clear that a different interpretation is intended.

Issuing stablecoin in the United Kingdom

This activity refers to a person established in the UK, and broadly consists of one or more of three activities:

• Offering, or arranging for another to offer, a qualifying stablecoin for sale or subscription
• Undertaking, or arranging for another to undertake, to redeem a qualifying stablecoin
• Carrying on, or arranging for another to carry on, activities designed to maintain the value of a qualifying stablecoin

Safeguarding of qualifying cryptoassets and relevant specified investment cryptoassets

This activity includes not just the safeguarding, or custody, of qualifying cryptoassets on behalf of another, but also of tokenised versions of securities and contractually-based investments. The activity also includes arranging for others to act as custodian.

Safeguarding itself is broadly defined as circumstances in which a person has control of a cryptoasset through any means that enable that person to bring about a transfer of the benefit of the cryptoasset.

A person may be regarded as holding a qualifying cryptoasset “on behalf of another” where that other person holds both legal and beneficial title, beneficial title only, or simply has a right against the custodian for the return of a qualifying cryptoasset or relevant specified investment cryptoasset. This would therefore appear to capture lending activities as well as custodial staking. There is, however, an exclusion permitting the temporary holding of qualifying cryptoassets and relevant specified investment cryptoassets to facilitate the settlement of transactions. This is so that cryptoasset trading platforms can give UK customers access to global markets without the risk of being deemed to be carrying on the safeguarding activity and needing to be authorised for that purpose.

The FCA plans to consult on a safeguarding regime for qualifying cryptoassets and relevant specified investment cryptoassets, with additional safeguarding requirements specifically for staked cryptoassets.

Operating a qualifying cryptoasset trading platform

The regulated activity of operating a qualifying cryptoasset trading platform mirrors that of the existing regulated activity of operating a multilateral trading platform. A qualifying cryptoasset trading platform is defined as a system which brings together or facilitates the bringing together of multiple third-party buying and selling interests in qualifying cryptoassets in a way that results in a contract for the exchange of qualifying cryptoassets for money (including electronic money) or other qualifying cryptoassets.

This is intended to ensure a clear perimeter between activities associated with cryptoasset trading and those for the trading of traditional securities, including those in tokenised form.

Dealing in qualifying cryptoassets as principal

This activity is defined as “buying, selling, subscribing for or underwriting qualifying cryptoassets as principal”, and is intended to include cryptoasset lending and borrowing services.

Some of the exclusions that apply in relation to existing regulated securities are mirrored in relation to this activity, such as where a person does not hold themselves out as willing to carry out such activities as principal. 

Further exclusions make it clear that the creation or minting of a qualifying stablecoin does not constitute dealing as principal. Nor will it be a regulated activity where cryptoassets are bought, sold, or subscribed for no consideration, nor where they are generated as a reward for the maintenance of a distributed ledger or the validation of transactions. These exclusions also apply in respect of dealing as agent and arranging deals in qualifying cryptoassets (see below).

Dealing in qualifying cryptoassets as agent

Buying, selling, or subscribing for or underwriting qualifying cryptoassets as agent will be regulated; this activity mirrors the existing regulated activity of dealing as agent in respect of specified investments.

Arranging deals in qualifying cryptoassets

As with arranging in relation to other specified investments, this activity in fact consists of two activities:

• Making arrangements for another person (whether as principal or agent) to buy, sell, subscribe for or underwrite a qualifying cryptoasset is a specified kind of activity
• Making arrangements with a view to a person who participates in the arrangements buying, selling, subscribing for or underwriting qualifying cryptoassets, whether as principal or agent

This activity is also intended to capture the operation of a cryptoasset lending platform.

Given the similarity with the existing regulated activities of arranging in relation to specified investments, it seems clear that the distinction between the two activities is intended to be that the first captures arrangements which bring about a transaction in a qualifying cryptoasset (i.e. have the direct effect that a particular transaction is concluded), while the second is concerned with arrangements of an ongoing nature whose purpose is to facilitate the entering into of transactions by other parties.

However, excluded from this activity are arrangements which solely introduce a person to an authorised person who is authorised to carry on a regulated activity in connection with cryptoassets.

Qualifying cryptoasset staking

The final regulated activity in relation to cryptoassets is making arrangements for qualifying cryptoasset staking. “Qualifying cryptoasset staking” is defined as the use of a qualifying cryptoasset in blockchain validation; “blockchain validation” is defined as the validation of transactions on a blockchain or a network that uses DLT or similar technology (including proof of stake DLT consensus mechanisms).

This activity is intended to include liquid staking; however, the issuance of liquid staking tokens is covered by the dealing activity, so a person engaging in this activity will require the necessary separate or additional permission.

The provision of services solely for the purpose of introducing a person to an authorised firm which is authorised to carry on this regulated activity is excluded from regulation.

Territorial scope

The territorial scope of the UK’s regulatory regime for cryptoassets is not entirely straightforward. The general approach is that a person undertaking one or more cryptoassets activities by way of business, and providing a service in or into the UK, will have to be authorised by the FCA. 

Where a firm is carrying on one or more of the following activities:

• Operating a qualifying cryptoasset trading platform
• Dealing in qualifying cryptoassets as principal
• Dealing in qualifying cryptoassets as agent
• Arranging deals in qualifying cryptoassets

if it is dealing directly or indirectly with a UK consumer, it will need to be authorised in the UK, whether the firm is based in the UK or overseas.

Where a firm is dealing with a UK consumer through an intermediary, it will not need to be authorised in the UK provided there is an intermediary between the firm and the UK consumer and that intermediary is authorised in the UK to operate a qualifying cryptoasset trading platform or deal in qualifying cryptoassets as principal.

Overseas cryptoasset firms carrying on the above activities but serving only UK institutional customers will not be required to be authorised in the UK, provided that those institutional customers are not acting as an intermediary between the overseas cryptoasset firm and UK consumers.

Firms will need to be authorised by the FCA to carry on the following activities in the UK or on behalf of a consumer in the UK:

• Safeguarding qualifying cryptoassets and relevant specified investment cryptoassets
• Qualifying cryptoasset staking

unless they are carrying on the safeguarding activity at the direction of a person who is themselves authorised in the UK to carry on that activity.

Finally, firms issuing qualifying stablecoin will only be required to be authorised if they are carrying on the activity of issuing qualifying stablecoin from an establishment in the UK.

The existing overseas persons exclusion will not be extended to cryptoasset activities. However, HM Treasury has said that it may reassess the position if equivalence or recognition arrangements are put in place with other jurisdictions.

Next steps

HM Treasury plans to publish final legislation by the end of 2025. Provisions relating to the planned market abuse and admissions and disclosures elements of the cryptoassets regime will be published by HM Treasury “in due course”.

The FCA has also published a Discussion Paper (DP25/1), setting out its proposed approach to regulating cryptoasset trading platforms, intermediaries, cryptoasset lending and borrowing, staking and decentralised finance, and the use of credit to purchase cryptoassets. It plans to publish a consultation paper in Q2 2025 on its proposed rules and guidance for issuing qualifying stablecoin, safeguarding qualifying cryptoassets and specified investment cryptoassets. This will be published alongside a consultation paper on the prudential framework for cryptoassets and prudential requirements for qualifying stablecoins and safeguarding.

These activities will also be subject to wider conduct and firm standards, such as the Consumer Duty and rules within the Conduct of Business sourcebook. The FCA plans to consult on these standards in a consultation paper due in Q3 2025.

Regime go-live is currently scheduled for some time in 2026, but this will be dependent both on parliamentary time and the outcome of the FCA's various consultation papers due over the course of 2025.