One Step Closer to a UK Cryptoasset Regime – But What Does It Really Mean?

HM Treasury has confirmed the details of the amendments it will be making to the UK financial services regulatory perimeter so as to bring crypto assets, including stablecoins within the scope of regulation. The new regime – set out in the draft Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoasets) Order 2025 (“draft SI”) – will be largely as expected, with the Treasury only making minor amendments to the proposals it previously set out in October 2023 and November 2024.

Background

By way of reminder, activities in relation to crypto assets and stablecoins are largely outside the scope of the current regulatory framework as set out in the Financial Services and Markets Act 2000 (“FSMA”). Those firms wishing to operate in the UK as a crypto asset exchange provider or custodian wallet provider are currently required to register with the FCA for anti-money laundering supervision purposes.

However because crypto assets and stablecoins do not meet the definition of a specified investment per the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (“RAO”) – with the exception of crypto assets that have the characteristics of a security such as tokens on a blockchain which give rights to an equity – firms providing services in respect of crypto assets and stablecoins have not been subject to full FCA authorisation and ongoing supervision covering all aspects of their business.

The new regime in summary

The draft SI confirms that the RAO will be amended so that qualifying cryptoassets (those that are fungible and transferable) and qualifying stablecoins (those that reference one or more fiat currencies and seek to hold those fiat currencies as backing assets to maintain a stable value) will now be caught by the definition of specified investments.

Further, the RAO will be amended to bring the following activities within the scope of the regulatory perimeter:

• Issuing a stablecoin, with this activity comprising three underlying activities, namely offering, redemption and maintaining value of the stablecoin. (The draft SI also confirms that the RAO will make it clear that stablecoin issuers will not be at risk of being deemed to be accepting deposits, an existing regulated activity);

• Safeguarding (custody) of qualifying cryptoassets; 

• Operating a qualifying cryptoasset trading platform;

• Dealing in qualifying cryptoassets as principal;

• Dealing in qualifying cryptoassets as an agent;

• Arranging deals in qualifying cryptoassets; and

• Qualifying cryptoasset staking. 

The geographic scope of the new requirements varies, insofar as the activities of operating a cryptoasset trading platform, dealing in cryptoassets as principal or agent and arranging deals in qualifying cryptoassets will require any firm providing these services to UK based consumers to seek FCA authorisation, regardless of where the firm itself is located and where the activity is being undertaken. Overseas firms providing these services purely for institutional customers will not need to be FCA authorised unless the institutional customer is acting as an intermediary between the firm and consumers.

In respect of safeguarding and cryptoasset staking, firms will only need to be FCA authorised if they are carrying on the activity in the UK for UK consumers. Firms issuing stablecoins will need to be FCA authorised if they are carrying on the activity of stablecoin issuance from an establishment in the UK.

What does this mean for cryptoasset firms?

Any firm wishing to carry on any of the activities in the revised RAO will need to apply to the FCA for authorisation under Part 4A of FSMA. This includes firms caught by the new regime that would currently be required to register with the FCA for money laundering purposes under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (“MLRs”), albeit that the MLRs are to be amended such that these firms will not also be required to apply for this registration.

In practical terms, the application process under FSMA is challenging, complex, and significantly wider in scope than the process of registering for FCA supervision for money laundering purposes. An application under Part 4A of FSMA requires the applicant firm to provide significant detail about their business model, structure, owners, senior management, policies and procedures, marketing strategies and finances. 

Individual senior managers within firms will need to apply (as part of the firm’s application) for approval and can be held personally accountable and liable for failings in the area of the firm they are responsible for. 

Once authorised, the firm itself will be subject to ongoing FCA supervision and scrutiny of any aspect of its regulated business and as such will be required to demonstrate compliance with requirements relating to conduct of business and market abuse, as well as the FCA’s consumer duty initiative.