Financial services

Horizon scanning

Regulating the unregulated: the UK's crypto revolution begins

What is happening?
Since the introduction of Bitcoin in 2009, the crypto market has surged, with over 560 million people worldwide now owning some form of cryptoasset. Despite its growing popularity, concerns around consumer protection have intensified. Celebrities continue to promote cryptoassets to potentially impressionable fans, often with little warning of the risks involved, while scammers increasingly target crypto investors.

As calls for regulation grow louder, the UK is taking action. In October 2023, HM Treasury (HMT) unveiled proposals to establish a financial services regulatory regime for cryptoassets, including stablecoins. Now, the government has taken a critical step forward – on 29 April, HMT published its long-awaited draft legislation to regulate the UK crypto market.

Bringing crypto within the regulatory perimeter

If passed, the Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025 will bring several cryptoasset activities within the financial regulatory perimeter by designating them as "regulated activities" under the Financial Services and Markets Act 2000 (FSMA) and the FSMA (Regulated Activities) Order 2001 (RAO). HMT sought technical feedback on the draft legislation by 23 May 2025.

The proposed legislation will amend the RAO to introduce the following new regulated activities:

issuing qualifying stablecoin in the UK (Article 9M)
safeguarding of qualifying cryptoassets and specified investment cryptoassets (Article 9O)
operating a qualifying cryptoasset trading platform (Article 9T)
dealing in qualifying cryptoassets as principal (Article 9U)

dealing in qualifying cryptoassets as agent (Article 9X)
arranging deals in qualifying cryptoassets (Article 9Z)
qualifying cryptoasset staking (Article 9Z7).

The RAO already defines "cryptoassets" but the new definitions of "qualifying cryptoassets" (Article 88F), "qualifying stablecoin" (Article 88G) and "specified investment cryptoassets" (Article 3) will now be introduced.

Alongside the changes to the RAO, the draft legislation also outlines amendments to other related legislation, including FSMA (to introduce enabling provisions and to clarify how certain activities that take place outside the UK will be

considered to take place in the UK) and the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (regarding the transition from being registered to authorised as cryptoasset providers).

The proposed legislation extends the existing regulatory regime to businesses operating in the crypto sector which brings the UK's approach to crypto regulation in line with that of the US. The government has also indicated that it will maintain close collaboration with the US on shaping the best approach to crypto regulation. This contrasts with the EU's strategy, which has been to develop entirely new rules specifically for the crypto industry.

FCA's role in overseeing the transition

A key component of the new regime is the Financial Conduct Authority's (FCA) oversight of the transition. Part 6 of the draft legislation requires the FCA to establish an early application window for firms seeking authorisation before the new regime takes full effect. Firms currently operating in this arena which fail to secure the requisite new permissions will not be treated as being in breach of the new regime. However, they will no longer be able to undertake new business and will need to wind down operations in an orderly fashion.

FCA response

In response to the draft legislation, the FCA is consulting, until 31 July, on proposed rules and guidance for the activities of issuing a qualifying stablecoin and safeguarding qualifying cryptoassets and proposed prudential rules for these activities. A consultation on wider conduct rules required to support the new regime (primarily the Consumer Duty and Conduct of Business Sourcebook rules) is expected in Q3 2025.

In the meantime, the regulator has sought views on its approach to regulating cryptoasset trading platforms (CATPs), intermediaries, cryptoasset lending and borrowing, staking, decentralised finance (DeFi), and the use of credit to purchase cryptoassets. The FCA asked for comments by 13 June 2025.

The FCA's discussion paper explores several key areas:

CATP operators – any firm operating a CATP in the UK, or serving UK customers, must be authorised. HMT has confirmed that the overseas persons exclusion will not be available to CATPs and the FCA says it will only authorise a branch of an overseas CATP operator if it can meet the fundamental threshold conditions and the FCA's general expectations. The FCA is proposing that CATP operators should also be subject to additional requirements when providing retail access, or algorithmic or automated trading and market making activity
cryptoasset intermediaries – the FCA plans to regulate intermediaries (ie those dealing as principal, dealing as agent and arranging deals in qualifying cryptoassets) under the principle of "same risk, same regulatory outcome". It is considering the potential form of post-trade transparency requirements and whether pre-trade transparency requirements are necessary. On client categorisation, it is exploring whether crypto-specific rules or guidance on retail customer opting up practices are required
cryptoasset lending and borrowing – whilst the FCA acknowledges that the crypto market is constantly evolving, it is proposing, at this stage, to restrict firms from offering crypto lending and borrowing products to retail consumers in their current structure (although it is open to feedback on this position)

use of credit to purchase cryptoassets – given the rise in consumers buying crypto on credit, the FCA is considering whether it would be appropriate to restrict firms from allowing consumers to do so. The FCA anticipates that firms would not be restricted from offering credit options for the purchase of qualifying stablecoins issued by an FCA-authorised stablecoin issuer
staking – the FCA plans to address the risks of staking (including the potential lack of consumer understanding and safeguarding risks) by introducing key features documents for staking products and requiring firms to obtain retail consumers' explicit consent on the amount of staked cryptoassets, conditions for payment, repayment, return of cryptoassets and fee-charging arrangements, before the firm stakes their cryptoassets. The FCA is also proposing safeguarding measures, eg requiring firms to maintain separate wallets for consumers' staked cryptoassets, distinct from the firm's and other consumers' cryptoassets
DeFi – DeFi activities that are truly decentralised will not be covered by the regime. However, where there is a clear controlling person carrying on the activity, it will be covered. The FCA intends to introduce guidance to help firms understand their regulatory obligations.

The discussion paper is the latest milestone in the FCA's roadmap towards crypto regulation, marking another important step towards creating a regime that both achieves an appropriate level of consumer protection and enhances market integrity whilst fostering innovation and encouraging growth. The regulator hopes to provide much-needed clarity for firms operating in this constantly evolving sector.

A defining moment for crypto regulation

The UK’s move towards cryptoasset regulation marks a significant shift – one aimed at balancing innovation and growth with consumer protection. The latest developments align with the government's broader growth agenda and appear to be designed to bolster investor confidence in the UK's cryptoasset industry. It will be worth watching for further government initiatives when the Financial Services Growth and Competitiveness Strategy is unveiled in the Chancellor's Mansion House speech on 15 July.

The proposed legislation defines the range of crypto-related activities subject to regulation and should bring both greater certainty for market participants and comfort in terms of consumer protection. Future FCA consultation(s) and ultimate policy and rules will provide more detail and set clearer expectations for crypto businesses.

As HMT and the FCA develop and refine the new framework, market participants and investors alike will be watching closely to see how the new regime reshapes the crypto landscape.

Whitney Simpson
Of Counsel
+44 7513 136046
whitney.simpson@rpclegal.com

Lucy Hadrill
Associate
+44 7751 807022
lucy.hadrill@rpclegal.com