Cryptoasset firms to be brought within the scope of the UK regulatory perimeter

Introduction

On 29 April 2025, the UK HM Treasury (HMT) published the Draft Instrument and a policy note for the regulation of certain activities relating to cryptoassets and stablecoins. This comes hot on the heels of the publication of the UK Financial Conduct Authority (FCA) cryptoassets roadmap, and discussion paper relating to the creation of a new UK tailored cryptoassets regime.  

The UK is somewhat behind the European Union, which has already established a tailored regime for cryptoassets activities through the Markets in Crypto-Assets regulation (MiCA), which came into force on 30 December 2024.

The UK Chancellor Rachel Reeves has confirmed that the UK intends to work closely with counterparts in the U.S. to encourage and facilitate “responsible regulation of digital assets”. The UK regime is expected to be further developed during the course of 2025 with the publication of consultation papers, policy statements and final rules. The regime is expected to “go live” during 2026.

 

At a glance

The new regime will bring crypto issuers, exchanges, dealers, agents and stakers within the scope of the existing financial services regulatory perimeter by creating new categories of:

• specified investments, which will capture qualifying cryptoassets, qualifying stablecoins and specified investment cryptoassets (eg a token on a blockchain that represents an interest or right to an equity, or bond, or a derivative); and

• specified activities, which will capture issuances, custody services, operators of trading platforms, principal, and agency trading, arranging, and persons engaging in staking activities.

This means that persons conducting these new cryptoasset regulated activities (Cryptoasset Firms) will be required to be authorised by the UK Prudential Regulation Authority (PRA) and/or the FCA for the purposes of section 19 of Financial Services and Markets Act 2000 (FSMA), unless an exemption applies.   

The regime has extra-territorial application in the sense that it will not only apply to Crypotasset Firms that are physically located in the UK, but also to firms located outside the UK that conduct some of the new cryptoasset activities with UK retail customers unless acting with and through certain types of UK authorised intermediaries, serving only UK institutional customers, or where an exemption applies. 

The Draft Instrument includes provisions to empower the PRA and the FCA to develop rules and guidance. The specific rules and regulations that will apply to Cryptoasset Firms will therefore continue to be developed by the PRA and FCA during the course of 2025. These will apply to Cryptoasset Firms when conducting the new cryptoasset activities and are likely to cover topics such as transparency, consumer protection provisions and operational resilience.  

There are also associated amendments to the UK financial promotions (marketing) regime and anti-money laundering (AML) requirements. Firms engaging in cryptoasset activities that are currently registered with the FCA for AML purposes will be required to be authorised under the new regime.

 

Assets and Activities

Whilst there seems to be some similarities between the proposed UK regime and MiCA, there are clear differences in the products and activities that will fall within the scope of the regulatory perimeter.

In addition, the extra-territorial application of both MICA and the proposed new UK regime may mean that firms will be required to be authorised in the UK and the EU when conducting crypto asset activities with UK and EU retail customers.

Product scope

In essence, under the new regime, cryptocurrencies and stablecoins will be regulated as a specified investment under FSMA. The term “cryptoassets” is already defined in FSMA as: “any cryptographically secured digital representation of value or contractual rights that: (a) can be transferred, stored or traded electronically, and (b) that uses technology supporting the recording or storage of data (which may include distributed ledger technology).”

Building on the existing cryptoassets definition, the Draft Instrument introduces three new concepts to underpin the new regime.

• Firstly, a “qualifying cryptoasset” which will consist of “a cryptoasset which is fungible and transferable but will excludes tokenised electronic money, central bank digital currencies and fiat currencies”.

• Secondly, a “specified investment cryptoasset”, which is a cryptoasset that is already itself a specified investment (eg a token on a blockchain that represents an interest or right to an equity, or bond, or a derivative).

• Thirdly, a “qualifying stablecoin” which will consist of 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 that: (a) fiat currency; or (b) fiat currency and other assets.” This means that a cryptoasset that only references real estate assets or commodities will not be treated as a qualifying stablecoin although it could still be a qualifying cryptoasset.

Interestingly, for now, stablecoins used for payments will not be brought with the scope of the UK Electronic Money Regulations 2011 and/or The Payment Services Regulations 2017 due to the low adoption of stablecoins for payment purposes. Although the UK government notes that “stablecoins have the potential to play a significant role in both wholesale and retail payments and stands ready to respond to this as part of wider payments reforms as use-cases and user adoption develops over time”.

Helpfully, the Draft Instrument includes changes to the UK Alternative Investment Fund Managers Regulations (AIFM) and Collective Investment Scheme to expressly exclude the backing of cryptoassets or stabilisation mechanism for a qualifying stablecoin from being treated as an AIF or a CIS. Although this exclusion will not apply to stablecoins that do not reference a fiat currency (as such assets are not qualifying stablecoins).

Activities Scope

The activities that are intended to fall within the scope of the UK cryptoassets regulatory perimeter broadly reflects proposals published by HMT in October 2023 and November 2024, but with some important and helpful clarifications. They will include:   

1. issuing qualifying stablecoin in the United Kingdom: offering, redeeming and maintaining the value of the qualifying stablecoin (but not creating or minting, and clarifying that stablecoin is not E-money);

2. safeguarding of qualifying cryptoassets and relevant specified investment cryptoassets: will not only capture the custody of qualifying cryptoassets but also specified investment cryptoassets that are securities (eg tokenised versions of equities, bonds etc.) or contractually based investments (eg tokenised versions of options, futures and CFDs). HMT explains that this is necessary as the custody of securities and contractually based investments currently fall within the scope of the current regulatory regime, and so for consistency, the tokenised versions of such products should also fall within scope. Helpfully, there is an exclusion for qualifying cryptoassets that are held on a temporary basis and specifically for the purpose of settling trades. It will be interesting to understand whether HMT intends for firms to be authorised to conduct safeguarding when they borrow cryptoassets;

3. operating a qualifying cryptoasset trading platform: operating 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: (a) money (including electronic money); or (b) other qualifying cryptoassets;

4. dealing in qualifying cryptoassets as principal: includes buying, selling for, or underwriting qualifying cryptoassets and extends to capture cryptoasset lending and borrowing services;

5. dealing in qualifying cryptoassets as agent: includes buying, subscribing for, or underwriting qualifying cryptoassets as agent;

6. arranging deals in qualifying cryptoassets: making arrangements for another person (whether as principal or agent) to buy, sell, subscribe for, or underwrite a qualifying cryptoasset; and making arrangements with a view to a person who participates in the arrangements buying, selling, subscribing for, or underwriting qualifying cryptoassets. It is intended to capture operating a lending platform; and

7. qualifying cryptoasset staking: making arrangements for qualifying cryptoasset staking (ie the use of a qualifying cryptoasset in blockchain validation) and will include liquid staking, although the issuance of liquid staking tokens will fall within the scope of the dealing activity.

Even if a firm is conducting a new cryptoasset activity, it may not be required to be authorised if it is able to rely upon one of the applicable exclusions. As is the case under the existing FSMA regime, the Draft Instrument contains exclusions that apply to certain cryptoasset activities including for groups activities, introductory services and in the absence of holding out.

The Draft Instrument does not include provisions relating to decentralised finance (DeFi) models. Rather it notes that the FCA will “determine in any given case whether there is a sufficiently controlling party or parties that ought to be subject to the requirement to be authorised [pursuant to] section 19 of FSMA”. It is hoped that the FCA will produce guidance to give a clear indication of the intended scope.

 

Territorial Scope

The Draft Instrument will amend s418 of FSMA to set the territorial scope of the new regime, rather than make use of the more easily understood and applied overseas persons exclusion. There is a clear risk that this approach could “muddy the waters” with non-UK firms grappling with the thorny issue of whether they are established in the UK for the purposes s418 of FSMA.

The policy intention is to apply the regime to UK based cryptoasset firms but also to non-UK cryptoasset firms that provide cryptoasset services (except issues qualifying stablecoins) to UK retail customers. Although non-UK cryptoasset firms may fall outside scope if they provide services through certain UK intermediaries that are authorised to operate a qualifying cryptoasset trading platform or deal in qualifying cryptoassets as principal or are otherwise able to benefit from an exclusion. 

Where firms are not carrying on business in the UK, the policy intention is that they will not be required to be authorised to provide these services to institutional clients for their own use.

 

Consequential amendment of other secondary legislation

Further amendments are made to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. Notably, where firms are authorised by the PRA and/or FCA to conduct these new cryptoasset activities, they will no longer be required to register with the FCA for AML purposes as ‘cryptoasset exchange providers’ or ‘custodian wallet providers’. Instead, these firms will only have to notify the FCA. Although they will have to comply with the prescriptive AML requirements that apply to regulated firms. The timing of this notification will depend on whether the firm is new or is already providing those services when the regime enters into force.

The Electronic Money Regulations 2011 are also amended to ensure that a ‘qualifying stablecoin’ are not included within the legal definition of ‘electronic money’.

The UK already has rules in place which restricts the marketing of cryptoassets (known as financial promotions). The Draft Instrument makes consequential amendments to the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (S.I. 2005/1529) to bring the promotion of the new cryptoassets activities within the scope of the financial promotions regime.

 

Next steps

The UK government’s decision to create a regulatory framework for cryptoassets activities is indicative of the growing legitimacy of cryptoassets, and the government’s commitment to making the UK the global hub for digital assets.

Published the same week, DP25/1 goes into more detail on the regulation of trading platforms, intermediaries, staking, lending and borrowing, and decentralised finance. The use of credit to purchase cryptoassets is covered there too.

Market participants will have until 23 May 2025 to provide technical comments on this Draft Instrument. HMT will then publish its final SI. HMT has also confirmed that statutory legislation will be published in relation to market abuse and admissions and disclosures regimes for cryptoassets “in due course”.

Firms should start to consider whether their existing activities or any proposed new activities fall within the scope of the proposed UK regime and engage with HMT, the PRA and FCA over the coming weeks and months. To ensure a smooth transition, the UK regulators are required to set a full period ahead of commencement of the regime in which firms are able to submit any advance applications for authorisation.

If you have any questions, please reach out to your DLA contact.