On 29 April 2025, HM Treasury released a near-final legislation to regulate cryptoassets. The draft statutory instrument (SI) aims to integrate cryptoassets into the existing financial services framework by amending the Financial Services and Markets Act 2000 (FSMA), the Regulated Activities Order (RAO), and related laws. This draft is open for technical review, with comments due by 23 May 2025.
Background
The draft legislation builds upon HM Treasury’s consultation and keynote address of October 2023 and November 2024 respectively.
The UK’s financial services watchdog, the Financial Conduct Authority (FCA) also announced that it will invest £7.8 million in 2025-26 to develop a regulatory framework for Cryptoassets. This will involve publication of at least 1 discussion paper and 4 consultation papers as per the FCA’s Crypto Roadmap.
Draft Legislation: what is covered and what is excluded?
New regulated activities
The following activities will be regulated: issuing a qualifying stablecoin in the UK, operating a qualifying trading platform, custody of qualifying cryptoassets, dealing in qualifying crypto assets as principal and agent, arranging deals in qualifying cryptoassets, and qualifying cryptoassets staking.
Who needs authorising
- UK or overseas firms engaging with UK consumers need UK authorisation if they: 1) Operate a qualifying cryptoasset trading platform; 2) Deal in qualifying cryptoassets as principal; 3) Deal in qualifying cryptoassets as agent; 4) Arrange deals in qualifying cryptoassets.
- Firms dealing with UK consumers through an authorised intermediary do not need authorisation.
- Overseas firms serving only UK institutional customers do not need authorisation, provided these institutional customers do not act as intermediaries between the overseas firms and UK consumers.
- Firms will need to be authorised in the UK if they are carrying 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.
- Firms issuing stablecoins need to be authorised only if they are issuing qualifying stablecoins form an establishment in the UK.
Transition period
There will be an application window before full implementation and orderly wind-down provisions for unsuccessful applicants.
No special provision for Decentralised Finance (DeFi)
The statutory instrument does not cover DeFi. The FCA will determine on case-by-case basis whether authorisation is needed for DeFi models.
Our View
The draft regulations are a significant step towards the government’s goal of making the UK a hub for digital assets and innovation. The FCA’s allocation of resources and funding also appears to suggest that it will be moving at pace to meet the targets under its crypto roadmap. Alongside the publication, the Chancellor also announced increased cooperation between the USA and UK on digital assets. It remains to be seen what impact this will have on the development of the cryptoasset regulatory framework in the UK. While many cryptoasset businesses have established themselves in other jurisdictions (such as the EU, Switzerland, UAE, Dubai and Singapore) that implemented regulated frameworks some time ago, we expect many of these businesses will need UK authorisation to continue to engage with their UK customers.
Next steps
Subject to Parliamentary time, HM Treasury aims to legislate the new cryptoasset regulatory regime by the end of this year. Meanwhile, the FCA, following its crypto roadmap, plans for the regime to go live by the end of 2026.
How can we help?
If you have questions around the provision of crypto asset services in the UK or want to understand how your business can ensure its compliance under the MLRs, please contact our expert Cryptoassets team.
