UK cryptoassets regime: the draft rules have landed

Following the Government's November 2024 update on its approach to regulating cryptoassets (see our blog post here), HM Treasury has published draft legislation - the Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025 - with an accompanying policy note.

As previously announced, the Government's policy intent is to bring certain cryptoassets within the financial services regulatory perimeter. It will achieve this by amending current perimeter rules in the Financial Services and Markets Act (Regulated Activities) Order 2001 (RAO). This blog post provides an overview of the draft rules.

There is a lot to unpack in the draft rules to assess the implications in particular on the perimeter and territorial scope, but also from a technical perspective on whether the design of the rules achieves the intended purpose and whether there are inadvertent consequences. HM Treasury invites technical comments on the draft rules by 23 May 2025, so there is not much time to digest their content. Firms that are likely to be in scope will need to start planning for implementation. Whether the rules will "make the UK a great place for digital asset companies to invest and innovate" (per Chancellor Rachel Reeves' speech at the Innovate Finance Global Summit 2025 on 29 April 2025) remains to be seen, but at least there is now a concrete proposal for the industry to engage with.

New cryptoasset regulated activities

The draft rules amend the RAO, including to:

• Add the following new definitions: "qualifying cryptoasset", "qualifying stablecoin" and "specified investment cryptoasset" (for more information, see "Key definitions" below).
• Insert "qualifying cryptoasset" and "qualifying stablecoin" as specified investments. 
• Add a new Chapter 2B on cryptoassets, specifying certain activities as regulated activities, meaning that persons carrying on these activities must be authorised under the Financial Services and Markets Act 2000 (FSMA), unless an exclusion applies. The new regulated activities are: 
  • issuing qualifying stablecoin in the UK (that is, offering, undertaking to redeem or maintaining the value of a qualifying stablecoin);
  • safeguarding (that is, custody of) qualifying cryptoassets or relevant specified investment cryptoassets, where "relevant specified investment cryptoasset" means a specified investment cryptoasset that is a security or a contractually based investment;
  • operating a qualifying cryptoasset trading platform;
  • dealing in (that is, buying, selling, subscribing for or underwriting) qualifying cryptoassets as principal or as agent;
  • arranging deals in qualifying cryptoassets; and
  • making arrangements for qualifying cryptoasset staking, where "qualifying cryptoasset staking" means the use of a qualifying cryptoasset in blockchain validation. 

Agreeing to carry on these regulated activities - with the exception of the regulated activity of issuing qualifying stablecoin in the UK and the regulated activity of operating a qualifying cryptoasset trading platform - will also be a regulated activity. 

Issuers will not be carrying on the regulated activity of accepting deposits where a sum is immediately exchanged for qualifying stablecoin within the scope of the new regulated activity of issuing qualifying stablecoin in the UK.

There are no special provisions in the draft rules for decentralised finance (DeFi) models. Where specified activities are being undertaken on a "truly decentralised basis" (in other words, where no person could be regarded as undertaking the activity by way of business), the authorisation requirement will not apply. The FCA will determine in a particular case whether there is a sufficiently controlling party or parties requiring authorisation.

Territorial scope

The draft rules amend FSMA to set the territorial scope of the regulatory perimeter for the new cryptoasset regulated activities. HM Treasury describes the Government's policy intent as "to ensure that cryptoasset firms serving UK retail customers should be authorised in the UK".

As a result, in relation to several of the new regulated activities (operating a qualifying cryptoasset trading platform, dealing in qualifying cryptoassets as principal or as agent and arranging deals in qualifying cryptoassets), a firm dealing directly or indirectly with a UK consumer will require UK authorisation whether it is based in the UK or overseas. However (in HM Treasury's words) "to avoid a situation where an ever-growing chain of firms are required to be authorised", this does not apply where a firm is dealing with a UK consumer through an intermediary that is a firm authorised to operate a qualifying cryptoasset trading platform or deal in qualifying cryptoassets as principal. Nor does it apply to an overseas cryptoasset firm serving only UK institutional customers (provided they are not themselves acting as intermediaries).

Similarly, a firm will require UK authorisation where it is carrying on, in the UK or on behalf of a customer in the UK, either the regulated activity of safeguarding qualifying cryptoassets or relevant specified cryptoassets, or the regulated activity of qualifying cryptoasset staking. There is an exception for firms in relation to safeguarding where this is carried on at the direction of a person that is itself authorised to carry on this regulated activity.

Firms established in the UK and carrying on the regulated activity of issuing qualifying stablecoin will require authorisation.

Financial promotions

The draft rules amend the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO) to:

• Update the existing qualifying cryptoasset definition to align with the new definition, and add the new definition of qualifying stablecoin. 
• Add the following new FPO controlled activities:
  • safeguarding of qualifying cryptoassets and relevant specified investment cryptoassets; 
  • operating a qualifying cryptoasset trading platform; and 
  • qualifying cryptoasset staking (with a carve out for this activity from the existing "arranging deals" FPO controlled activity).
• Remove the current FPO temporary provisions allowing cryptoasset firms that are registered with the FCA as custodian wallet providers or cryptoasset exchange providers under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) to approve their own financial promotions. This reflects the creation of the new cryptoasset regulated activities. Firms authorised to carry on these activities will be able to approve their own financial promotions.

HM Treasury clarifies that, where new cryptoasset activities have not been added to the FPO, this is because they are regarded as being covered by existing FPO controlled activities.

Consequential amendments to other statutory instruments

The draft rules make further consequential amendments to other statutory instruments, including to ensure:

• The new cryptoasset regulated activities are included under the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) Order 2001. 
• Arrangements for the backing assets or stabilisation mechanism for qualifying stablecoin will not be considered a collective investment scheme or an alternative investment fund. This will be achieved through amendments to the Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001 and the Alternative Investment Fund Managers Regulations 2013.
• There is a distinction between qualifying stablecoin (and their backing assets or the stabilisation mechanism) and tokenised deposits, and electronic money. This will be achieved through amendments to the Electronic Money Regulations 2011.

Notably, HM Treasury reiterates that, as previously announced, the Government does not intend to proceed at present with amending the Payment Services Regulations 2017 (PSRs 2017) to bring UK-issued stablecoins into regulated payments. As a result, stablecoins used for payments will remain unregulated for now. However, the Government believes stablecoins have "the potential to play a significant role in both wholesale and retail payments". It will be ready to act, as part of wider reforms to the UK payments system, in response to greater user adoption and development of use cases over time.

Commencement and transitional period

Certain provisions of the draft rules have an earlier commencement date, to allow the FCA and the PRA to issue directions, guidance and rules before full commencement. In particular, the FCA is required to set a period before full commencement during which firms can submit advance applications for authorisation.

The draft rules also provide for a maximum two-year transitional period for firms undertaking cryptoasset services that have applied to the FCA for, and not been granted, permission (or the variation of an existing permission) to carry on one of the new cryptoasset regulated activities. During this period, they will not be permitted to undertake new business and will need to enter into an orderly wind down of their existing business.

Key definitions

FSMA (as amended by the Financial Services and Markets Act 2023) contains a definition of "cryptoasset", namely any cryptographically secured digital representation of value or contractual rights that can be transferred, stored or traded electronically, and that uses technology supporting the recording or storage of data (which may include distributed ledger technology (DLT)).

The new definitions that will be added to the RAO for the purposes of the UK regulatory regime for cryptoassets include the following:

What happens next?

The draft rules are in near-final form and HM Treasury makes clear that its policy in this area is "settled". However, technical comments can be made on the draft rules until 23 May 2025 and HM Treasury will consider them, focusing on any changes that are necessary to achieve its stated policy intent. 

The Government will publish legislative provisions for the cryptoasset market abuse and admissions and disclosures regimes "in due course". It intends to legislate for the new cryptoasset regulatory regime by the end of 2025, parliamentary time permitting. 

In parallel, the FCA intends to publish a range of publications this year, as set out in its crypto roadmap and the latest edition of the Regulatory Initiatives Grid. It published the first of these publications in the same week that HM Treasury published the draft rules: a discussion paper on regulating cryptoasset activities (DP25/1). We will consider DP25/1 in a future blog post.

Separately, but still on the theme of digital assets and innovation in UK financial services, the Chancellor Rachel Reeves has announced that:

• The Government will publish the first Financial Services Growth and Competitiveness Strategy on 15 July 2025, alongside the Mansion House speech. This strategy will be designed to support the long-term growth of the financial services sector (FinTech will be identified as a priority sector) and help it to finance UK investment and growth.
• The next meeting of the UK-US Financial Regulatory Working Group in June 2025 will continue UK and US engagement to support the use and responsible growth of digital assets. The Chancellor has discussed with Scott Bessent, US Treasury Secretary, opportunities to support businesses to innovate, including proposals put forward by Hester Peirce, SEC Commissioner, for a transatlantic sandbox for digital securities. This would offer the potential for digital collaboration between UK and US capital markets.