UK government paves way for new cryptoassets regulatory regime

HM Treasury has published a draft statutory instrument (SI) which sets out provisions for regulating certain cryptoassets. Under the proposed rules, UK crypto exchanges, dealers and agents will be brought into the regulatory regime under the Financial Services and Markets Act 2000 (FSMA)..

The new regime will operate a cryptoasset trading exchange and grant new enforcement powers to the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), the financial services industry’s main regulators, to oversee digital assets.Under the proposals, “qualifying cryptoassets” and all “qualifying stablecoins” will be regulated as new types of investments specified under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO). The rules will apply to firms dealing with UK consumers regardless of whether they are based overseas for certain activities.

Commenting on the provisions, financial regulation expert Josie Day of Pinsent Masons said: “The publication of this SI for comment heralds the first step for firms and regulators along the road to regulation of these areas as the proposed SI will extend the financial services regulatory perimeter to ‘qualifying cryptoassets’ and ‘qualifying stablecoin’ as these are to be defined.”

The government said in a policy paper that it will also publish separate statutory provisions for the market abuse and admissions and disclosures regimes in due course.

On announcing the draft legislation, HM Treasury welcomes technical comments from the industry on the SI – a move which Day says will help ensure the draft SI both “matches up with the policy intent” and “avoids other unintended consequences.” Comments are due by 23 May.

Financial regulation expert David Heffron of Pinsent Masons said: “The SI paves the way for the UK’s financial services regulators to move forward into this new area of regulation by empowering them to issue rules, guidance and directions.” he said. “The Financial Conduct Authority  will have new powers, notably including to enable applications for permission and variations of permission under Part 4A FSMA, in respect of any of the activities which are to become regulated under the SI for cryptoassets.”

Ann Zheng of Pinsent Masons said the publication of the draft SI also provided much-needed clarity for firms already operating in or considering investing in the UK’s cryptoasset industry. “This clarifies the timeline for firms looking to move into these newly regulated areas as once the Orders are in force the regulators will be empowered to finalise their regulatory approach and requirements as they will then be able to make their rules.”

Following engagement with industry, the new legislation is expected to come fully into force by the end of 2025. It follows the Labour government’s confirmation in November 2024 that it would proceed with introducing a standalone regulatory regime for cryptoassets, and the associated regimes for admission to trading and market abuse.

Despite a global slowdown in fintech investment, in 2024 the UK fintech sector attracted $3.6billion of investments, maintaining its position as the second-largest recipient of fintech funding after the US. Recent research conducted by the FCA also revealed that last year around 12 per cent of UK adults owned crypto currencies such as bitcoin or ethereum, up from 4% in 2021.

The draft legislation comes as the government plans to publish its first ever Financial Services Growth and Competitiveness Strategy on 15 July.

The new provisions also signal increasing alignment with the US approach to cryptoassets, which also extends financial regulation to companies involved in the cryptoasset sector. As noted by Rachel Reeves, chancellor of the exchequer, the UK government is in ongoing discussions with the US to coordinate on digital asset policy. This contrasts with the European Union’s more tailored approach through the EU's Markets in Cryptoassets Regulation (MiCA) regulation, which first came into force in 2023 and was updated in December 2024.