New cryptoasset legal and regulatory framework - rules to drive growth and protect consumers  

New cryptoasset legal and regulatory framework - rules to drive growth and protect consumers

The UK HM Treasury and FCA have released a (long-awaited) package of draft proposals furthering the creation of the UK's legal and regulatory framework for cryptoassets. On 29 April 2025, the UK government published a draft statutory instrument and policy note outlining a new regulatory regime aimed at fostering innovation and competition while ensuring consumer protection and financial stability. The draft Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025 introduces new specified activities and investments for cryptoassets under the Financial Services and Markets Act 2000 (FSMA) and amends existing legislation to maintain consistency and avoid redundancy (the draft order) (found here).

To complement the draft order, the FCA released a discussion paper on 2 May 2025, detailing its proposals for the regulatory framework governing cryptoasset activities in the UK (the DP) (found here). The DP aims to elaborate on the legislative framework, providing comprehensive guidance on the proposed regulatory measures. The goal is to create a robust and effective regulatory regime that balances the need for innovation with that for consumer protection and financial stability. We summarise the UK cryptoasset package below.

Regulated cryptoasset activities

The draft order introduces new specified activities (with corresponding exemptions) for 'qualifying cryptoassets' under FSMA and amends existing legislation to ensure consistency and avoid duplication.

The new specified activities include:

• issuing qualifying stablecoins in the UK;
• operating a qualifying cryptoasset trading platform;
• safeguarding qualifying cryptoassets and relevant specified investment cryptoassets;
• dealing in qualifying cryptoassets as principal or agent;
• arranging deals in qualifying cryptoassets; and 
• qualifying cryptoasset staking.

The proposed regulation includes new specified investments related to cryptoassets and stablecoins, which importantly define a "qualifying cryptoasset" as a cryptoasset that is 'fungible' and 'transferable'. It also includes new definitions of a "specified investment cryptoasset" as a cryptoasset that is a specified investment and "qualifying stablecoins" that are qualifying cryptoassets that reference a fiat currency and seek to maintain a stable value by holding or arranging for the holding of fiat currency or fiat currency and other assets.

The draft order excludes certain cryptoasset types, including "tokenised e-money," and "tokenised deposits". 

Territorial scope 

The draft order also establishes the territorial scope for the new regulated activities, which covers overseas firms that (broadly) are dealing directly or indirectly with (or on behalf of) a consumer in the UK, regardless of whether the firm is based in the UK or overseas, subject to certain exceptions.

This has the potential to impact a wide range of entities, businesses, and firms that are involved in the cryptoasset sector, such as issuers, exchanges, custodians, brokers, advisers, and stakers. However, the territoriality of the majority of the regulated activities under the proposed regulations for overseas persons turns on whether the firm is dealing with a UK "consumer", who is an individual acting for purposes outside those of any trade, business or profession carried out by the individual. This is akin to a quasi-OPE for overseas cryptoasset service providers.  Accordingly, overseas cryptoasset firms carrying on the above activities but only serving UK institutional customers will not be required to be authorised assuming those institutional customers are not acting as an intermediary between the overseas firm and a UK customer, in which case either the overseas firm or the intermediary is likely to require authorisation (but not both entities).

Application process - registration under the MLRs and transitional arrangements

Cryptoasset businesses currently need to be registered with the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) if they intend to provide certain cryptoasset services by way of business, and if this service will be in the course of business carried on by them in the UK.

The new regime under the HMT's proposals will require all existing cryptoasset service providers under the MLRs and new entrants/ firms with existing FCA authorisation to apply to the FCA for the relevant cryptoasset permissions (i.e. new authorisation or variation of permission). The proposals streamline the requirements such that firms authorised to perform cryptoasset services under the new regime will not need to be registered under the MLR regime. Firms will, however, remain subject to the substantive requirements of the MLRs as incorporated into the FCA rules (e.g. CDD, KYC etc).

The draft order requires the FCA to set a "relevant application period" for firms to apply for authorisation to carry out regulated cryptoasset activities. This period, which will be set at least one year before the new regulations fully commence, must last for at least 28 days and end at least 28 days before the full commencement date.

Following the start of the new regime, firms that "already carry on cryptoasset services" who apply for authorisation will be able to rely on a two-year transitional period while being treated as if they are not in breach of the new regulatory regime. There are two versions of the transitional period (i) one for firms that have not yet had their authorisation application determined or is subject to an appeals process, which allows the applicant to continue providing services for the two-year period, and (ii) another applying to firms whose applications are refused by the FCA or withdrawn by the firm, which allows firms to continue providing services to existing customers with a focus on winding down their existing operations in an orderly manner.

The FCA's proposals – DP25/1

Key proposals under the DP include the following requirements:  

• entities operating trading platforms for cryptoassets, intermediaries, lenders, and those involved in staking and decentralised finance in the UK or providing services to UK retail clients will be required to be authorised in the UK;
• qualifying cryptoasset trading platforms (CATPs) will be subject to rules similar to traditional trading venues, including restrictions on proprietary trading, enhanced systems and controls for retail access, algorithmic trading, and market making;
• CATPs will be subject to requirements for pre- and post-trade transparency, data recording, and conflict of interest management; and
• intermediaries will be subject to best execution duties, order handling rules, and bans on payment for order flow. 

Timelines and next steps

The draft order is subject to parliamentary approval and is expected to come into force in 2025, comments due 23 May 2025. The government intends to legislate for the new cryptoasset regulatory regime by the end of this year, subject to parliamentary time allowing. The FCA will consult on the detailed rules and guidance for the new regime in due course. The government has also indicated that it will not proceed with bringing UK-issued stablecoins into regulated payments at this time, but stands ready to respond to this as part of wider payments reforms as use-cases and user adoption develops over time. The government has also said that it will publish provisions relating to market abuse and admissions and disclosures for cryptoassets in due course.

The FCA requires responses to the DP by 13 June 2025, with the corresponding consultation paper expected to launch Q4 2025/Q1 2026. The FCA has proposed through its cryptoasset roadmap (found here) to release a broader package of papers clarifying the scope of the cryptoasset regulatory framework through the course of 2025 and 2026, with the proposed go live date for the full legal and regulatory framework being Q2 2026 onwards.

Drafted by Jamie Jefferson Ng, Arnav Gupta and Maria D'Orey