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United Kingdom | Publication | June 2025
On 29 April 2025, the UK Government published draft legislation for cryptoassets – the Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025 (the draft legislation) – which the industry had been waiting for since HM Treasury (HMT) consulted on its initial proposals and published its feedback in 2023, followed by a speech in November 2024 from the then-Economic Secretary to the Treasury Tulip Siddiq who provided a further update.
The draft legislation enables the Financial Conduct Authority (FCA) to continue with its roadmap of discussion and consultation papers about its proposed approach to regulating cryptoassets, beginning with a discussion paper (DP25/1) on regulating cryptoasset activities which it published on 2 May 2025 and two consultation papers published on 28 May 2025 – CP25/14 on stablecoin issuance and cryptoasset custody and CP25/15 on a proposed prudential regime for cryptoasset firms.
In this briefing, we will look at the new framework set out in the draft legislation, the FCA’s latest discussion and consultation papers, and what we are expecting to see next.
The UK is taking a different approach to the EU, expanding the scope of its existing framework to include cryptoassets rather than creating a standalone regime. Under the draft legislation, new regulated activities will be created that are similar to existing ones for traditional assets but that relate instead to qualifying cryptoassets – including, for example, operating a cryptoasset trading platform and stablecoin issuance.
Cryptoasset firms with UK customers will also be required to meet clear standards on transparency, consumer protection, and operational resilience in the same way as firms in traditional finance. This is broadly in line with HMT’s 2023 consultation feedback, which was updated in November 2024, although there are some important changes and clarifications (many of which reflect industry feedback).
There will also be market abuse and admissions and disclosures regimes for cryptoassets, details of which will be published “in due course” following the FCA’s publication of a discussion paper on the proposed regime in December 2024.
The draft legislation amends the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO) to add definitions of “qualifying cryptoassets” and “qualifying stablecoin” – the principal classes of cryptoassets to which the regime will apply – and to classify those as specified investments under the Financial Services and Markets Act 2000 (FSMA).
There is already a definition of “cryptoassets” in FSMA, which covers “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).” HMT has previously stated its intention to avoid regulating cryptoassets that are not used like investments, and the draft legislation seeks to achieve that through its definition of qualifying cryptoassets – a subcategory of “cryptoassets” which are fungible and transferable. They do not include “specified investment cryptoassets” or other instruments that could meet the definition of “cryptoasset” under FSMA, such as tokenised securities, e-money or tokenised deposits. Qualifying stablecoins are a sub-set of qualifying cryptoassets and are stablecoins that reference one or more fiat currencies and seek to hold those fiat currencies (or fiat currencies and other assets) as backing assets to maintain a stable value. It remains to be seen whether this will succeed in ensuring only cryptoassets that are used like investments fall in scope of regulation.
The proposed amendments to the RAO create new specified activities for certain types of cryptoassets, meaning that persons carrying on those activities will need to be authorised by the FCA for those purposes. These new activities will be quite familiar to those already operating in the UK financial services space and include:
Compared to HMT’s previous proposals, these activities have been defined a little further in some cases with relevant exclusions, although there is likely to be some debate over the exact scope of several of these.
In terms of territorial scope, the draft legislation makes amendments to FSMA to set the geographic perimeter for the new regulated activities. It means that not only firms carrying on the activities from the UK but also, in some cases, those carrying on activities from elsewhere will require authorisation.
Overseas firms that deal directly or indirectly with a UK consumer will need to be authorised in the UK in order to operate a qualifying cryptoasset trading platform, deal in qualifying cryptoassets as principal or agent, or arrange deals in qualifying cryptoassets, unless they are dealing with that consumer through a UK authorised intermediary with the necessary permissions. A consumer for these purposes is an individual who is acting for purposes outside those of any trade, business or profession carried on by the individual.
Overseas firms that safeguard qualifying cryptoassets and relevant specified investment cryptoassets, or arrange qualifying cryptoasset staking, will need to be authorised in the UK if they are doing so directly or indirectly on behalf of a consumer in the UK (subject to a limited exception for safeguarding). However, firms issuing qualifying stablecoins will only need to be authorised if they do so from an establishment in the UK.
The overseas person exclusion has not been extended to these new activities so the elaboration on territorial scope is helpful and provides some flexibility for non-UK firms, but more so for those dealing with only institutional clients in the UK.
Changes to the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 will apply FSMA’s financial promotion regime to the new cryptoasset-related regulated activities, as well as removing the current (temporary) provisions that allow crypto firms registered with the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) to communicate their own financial promotions.
The draft legislation also makes amendments to the MLRs themselves to reflect the new regulatory perimeter. Authorised firms with the requisite new permissions will no longer need to register with the FCA for anti-money laundering purposes but they will need to notify the FCA that they intend (or have within the past 28 days begun) to act as a cryptoasset exchange provider or a custodian wallet provider, and they must also continue to comply with the requirements in the MLRs.
Whilst HMT has set out the draft legislative framework, there is still a lot of work to be done before this becomes a fully fleshed-out regime. The FCA’s publication of DP25/1 is a further step towards establishing that detail, as it opens a discussion on certain features of the future regime for cryptoassets. The discussion paper, open for comment until 13 June 2025, seeks views on how the FCA should regulate trading platforms, intermediaries, staking, lending and borrowing, and decentralised finance (DeFi), as well as the use of credit to purchase cryptoassets.
In particular, the FCA sets out its policy proposals on:
The FCA has also set out its proposals for rules and guidance on stablecoin issuance and cryptoasset custody, in CP25/14, and a proposed prudential regime for cryptoasset firms in CP25/15, both published on 28 May 2025.
Stablecoin issuance and cryptoasset custody
The FCA’s proposals in CP25/14 relate to the activities of issuing a qualifying stablecoin and safeguarding qualifying cryptoassets (including qualifying stablecoins). As HMT has previously confirmed that it does not intend to bring stablecoins into UK payments regulation at this time, the proposals do not include requirements for firms carrying out payments using qualifying stablecoins.
The proposed requirements for qualifying stablecoin issuers including backing qualifying stablecoins with secure, liquid assets in a statutory trust for qualifying stablecoin holders (held with a third-party custodian); offering redemption of qualifying stablecoins in exchange for money to all holders; and clearly disclosing their policy for redemption and the composition of backing assets to consumers.
Custodians of qualifying cryptoassets would be required to segregate client cryptoassets from their own; hold them on behalf of clients in a trust; keep accurate books and records of clients’ cryptoassets holdings; and have adequate controls and governance to protect clients’ cryptoassets holdings.
Proposed prudential regime
The prudential rules and guidance proposed in CP25/15 will apply to the issuing of qualifying stablecoins and the safeguarding of qualifying cryptoassets. Parts of the proposed prudential regime will be placed in the FCA’s proposed new integrated prudential sourcebook (COREPRU) while the sector specific requirements for firms doing regulated cryptoasset activities will be set out in a new sourcebook known as CRYPTOPRU, and these firms will be referred to as CRYPTOPRU firms.
Areas covered by the proposals include:
HMT has sought technical comments on the draft legislation and now plans to publish its final legislation “at the earliest opportunity”. HMT has also confirmed that statutory provisions for the market abuse and the admissions and disclosures regimes will be published “in due course”.
In terms of establishing the detail of the FCA regulatory regime, the deadline for comments on DP25/1 is 13 June 2025 and the FCA is seeking feedback on its proposed approach to regulation and whether there is a need for greater, or less, regulatory intervention in the market. It has said it will then consider the feedback and decide on its next steps. Any proposals from DP25/1 that the FCA plans to adopt as part of its final rules will be consulted on first.
The deadline for responses to CP25/14 and CP25/15 is 31 July 2025, and the FCA plans to consider responses to both CPs and to set out final rules and guidance in policy statement(s) ahead of implementation. As CP25/15 focuses only on certain aspects of the prudential regime for CRYPTOPRU firms, other areas will be covered in future consultations.
A further FCA consultation paper is planned for Q3 2025 on wider conduct and firm standards for RAO activities. According to the FCA’s crypto roadmap published in November 2024, looking further ahead we can also expect to see:
We do not therefore think it will be necessary or possible to apply for authorisation until some time in 2026 but firms will want to be preparing their plans and making sure they have all the information they need well in advance of that.
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