To promote development and innovation in the cryptoassets industry while preserving financial stability and unambiguous regulatory norms, the UK government is seeking input on a proposed regulatory framework. This survey comes after the Financial Services and Markets Bill (FSMB) proposed to bring stablecoins and other “digital settlement assets” used for payments within the current e-money rules. In conclusion, several new, specialized cryptoasset-regulated activities will be developed based on comparable non-cryptoasset-regulated activities.
This probably means that companies that deal primarily in crypto assets, or “crypto native firms,” will have to get full FCA authorization and oversight. Existing “tradfi,” or traditional finance, companies will be allowed to increase the scope of their authorization to engage in cryptoasset operations.
Introduction to cryptoassets
The Financial Services and Markets Act (FSMA) framework will be used by the government to regulate cryptoassets since it believes that these assets and the activities that support them should adhere to the same criteria as other comparable financial services activities.
HM Treasury (HMT) is proposing to establish several new specific cryptoasset-regulated or designated activities that aim to replicate or closely resemble regulated activities carried out in traditional financial services. As a result, crypto assets will become a new specified investment. A company must be authorized under the FSMA and have permission to engage in certain activities if it wishes to do so.
HMT is proposing to regulate cryptoasset activities offered in or to UK clients, given that UK consumers can access cryptoasset services from anywhere in the globe. As a result, offshore companies that conduct business with UK clients will have to obtain UK authorization. HMT is, however, taking into account exceptions to this rule, such as permitting “reverse solicitation,” which would occur if a UK customer used a specific cryptoasset service wholly on their own initiative.
How this would be implemented to stop regulatory arbitrage is unclear, and the idea of “reverse solicitation” is already difficult to understand in conventional financial services. Equivalency or deference agreements with other jurisdictions that have comparable criteria are also being considered by HMT.
Requirements of cryptoassets
The framework for certain activities that HMT deems to be the most risky, along with particular regulatory requirements for these activities, is outlined in the consultation. Nonetheless, there are a few prerequisites that businesses must meet for all of the activities:
- Applications to the FCA for authorization under the FSMA should include information about operations, services, and business goals. It may also include organizational and governance arrangements; cybersecurity; risk management procedures; outsourcing agreements; and financial resources.
- The FCA will decide the specifics of the location requirement.
- Prudential standards require enough money to run a firm responsibly. The FCA will establish capital and liquidity standards that take into account the possibility of harm from ongoing operations as well as the capacity to wind down systematically.
- Strong governance structures.
- Businesses need to be robust, conduct thorough due diligence, and monitor outsourcing agreements continuously.
- FCA should be able to take part in insolvency proceedings by using the FSMA’s insolvency authorities. Over time, HMT will think about whether to create a custom resolution regime.
Key regulatory authorities governing cryptoassets
Unregulated cryptocurrency assets are not covered by UK financial regulations. Individual investors who decide to purchase them and use them as a form of trade or payment are not protected. Except for the applicability of the AML and CTF rules to cryptoasset businesses, the FCA does not control the sale or transfer of exchange tokens or step in on behalf of customers who lose their investments.
For cryptoasset service providers in the UK, including cryptoasset exchanges, custodian wallet providers, and crypto ATMs, the FCA is the AML and CTF supervisor under the MLRs. A cryptoasset company must show that it has policies, controls, and processes in place to effectively manage money laundering and terrorism financing risks appropriate to the scale and nature of the business’s operations as part of the MLRs registration process.
Although registering under the MLRs is not a formality, it is not an application for authorization, which is required to function as an issuer of security tokens or an e-money license. The FCA has established extremely high standards for itself and shown hesitancy to approve applications under this framework.
Recent legislative developments (2025) in UK crypto regulation
The Treasury released comprehensive plans for the establishment of a financial services regulatory framework for stablecoins and other cryptoassets in October 2023. These plans called for the creation of new, regulated activities related to cryptoassets, like “the operation of a cryptoasset trading platform,” and mandated that companies that wanted to offer related services in or to the UK be approved and overseen by the Financial Conduct Authority (FCA). Market abuse frameworks and additional admissions and disclosures would support these new regulated activities.
The plans for stablecoins included amending the Payment Services Regulations 2017 (PSRs 2017) to bring payments using these stablecoins within the regulatory framework for payments and establishing a new regulated activity of producing fiat-referenced stablecoins in the UK. The government stated in November 2024 that it would move forward with implementing these suggestions essentially as is and planned to enact the related legislation this year, parliamentary time permitting.
The government has stated that it will not move forward with changing the PSRs 2017 to include stablecoins issued by the UK in regulated payments at this time. Stablecoins will continue to be unregulated for payments for the foreseeable future; however, this does not indicate that they cannot be used to make payments in the UK.
As use cases and user uptake evolve, the government is prepared to address stablecoins as part of broader payments reforms since it believes they have the potential to play a big role in both wholesale and retail payments.
The Financial Conduct Authority’s role and proposals
In the UK, it is tasked with the role of regulating consumer protection and the operations of businesses within the cryptocurrency industry. The FCA is developing a regulatory framework that would help it identify cryptoasset businesses to operate in a transparent, resilient, and fair way.
Among the recommendations that the FCA has made, one of them is to have the regulatory framework cover additional cryptoasset businesses and activities, such as the licensing of cryptoasset businesses, provided they are conducting regulated activities, such as offering custodial services of cryptoassets, running exchanges, or trading in cryptocurrencies. The FCA is mainly focused on reducing the risk of fraud, the risk of money laundering, and protecting investors.
Conduct and prudential requirements for crypto firms
Regulating the behavior and prudential regulation of cryptocurrency enterprises in the United Kingdom is the responsibility of the Financial Conduct Authority (FCA), first of all. These laws seek to ensure fairness in practices by companies, consumer welfare, and trade integrity.
One such conduct requirement is to adhere to the anti-money laundering (AML) and counter-terrorist financing (CTF) aspects of the Money Laundering Regulations 2017 and amendments.
To conduct business, crypto businesses have to be registered by the FCA so that it can monitor the suitability and adequacy of their employees, the clarity of their financial promotions, and the effectiveness of their AML/CTF policies and practices.
Prudential requirements focus on the protection of client assets, the maintenance of operational resilience, and compliance with capital adequacy requirements to effectively manage risk. A business that deals with qualified cryptoassets (for example, trading platforms or custodians) must be authorized and comply with conduct regulations to protect customers and prevent financial crime.
As stated in recent FCA proposals, some conduct requirements may be relaxed while achieving innovation, whilst maintaining standards for consumer protection and market confidence. These proposals achieve a balance between the need for specificity in operational and risk management frameworks while also allowing for competitive growth.
In order to trade lawfully and secure consumers, cryptocurrency companies operating in the UK must generally manage a stringent regulatory framework that includes registration, conduct, prudential safeguards, and continuous FCA oversight.
Stablecoins and safeguarding requirements
The UK’s Financial Conduct Authority (FCA) has put together an extensive regulatory scheme specifically for stablecoins, which are cryptoassets intended to have a stable value relative to one or more fiat currencies. It’s required that any party wanting to issue stablecoins obtain FCA authorization in advance. Issuers must identify and manage the risks of stablecoin design and minting, even if those activities are unregulated in and of themselves.
The underlying assets that back the value of a stablecoin are an essential element of protection. The regulations allow issuers to hold “core backing assets” by default, including government debt with maturities of one year or less and short-term cash deposits. These rules seek to mitigate failure risks and protect holders of a stablecoin by ensuring that backing assets are appropriately held and segregated from the issuer’s own assets.
This regulatory regime is part of a larger effort to create a safe and sustainable cryptocurrency industry in the UK and balances innovation with consumer protection and market integrity. The FCA closely collaborates with the Bank of England on stablecoins. This is especially true for those that are considered systemic and used for payments, as they may be subject to further dual regulation.
Future outlook and expected changes in UK crypto regulation
The potential for crypto regulations/legislation in the UK from 2025 suggested a robust and comprehensive regulatory mechanism meant to channel innovation effectively while preserving consumer protection and market integrity. Recent UK legislation has been advanced by the UK government and HM Treasury under the supervision of the FCA of the Financial Services and Markets Act 2000 (Cryptoassets) Order 2025 to broaden the scope for authorized crypto activities that include trading, lending, issuance, and stablecoins.
- Expansion of the regulatory perimeter to include more of the crypto economy;
- A regulatory regime to address risks of financial crime, insider trading, and market manipulation in the crypto sector.
- Risk prudential standards and standards of disclosure to improve the operational resilience of crypto firms;
- Enhanced standards of governance, transparency, and consumer protection in securing financial assets;
- Establishment of a regulatory framework covering cryptocurrencies and stablecoins;
- Regulation over crypto-activities in the UK and the activities of foreign firms dealing with UK clients.
The government is also concentrating on closely observing the operations of cryptocurrency assets and improving regulations about lending, staking, and token governance. By promoting competitive growth, maintaining financial market stability, and offering legal certainty, the UK hopes to establish itself as a global leader in the regulation of digital assets.