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At the end of April, HM Treasury (HMT) published its highly-anticipated draft (SI) and on the UK’s cryptoasset regulatory regime. This will create a legislative framework to allow the FCA to complete its rulebook for cryptoassets and stablecoins. Shortly afterwards, the FCA issued its latest Discussion Paper ().

The SI establishes new regulated activities �� including operating cryptoasset trading platforms, custody services, and arranging cryptoasset transactions �� all of which will require authorisation under FSMA. DP 25/1 sets out the FCA’s thinking on the detailed regulation of some of these activities and allows firms to consider how their business models might be impacted and what they will need to put in place to comply.

In October 2023, HMT published for creating a UK regulatory regime for cryptoassets. This involved creating new regulated activities whereby firms seeking to provide these services in or to the UK��would need to be authorised and supervised by the FCA. In November 2024, the government it would proceed with introducing this regime, broadly in line with initial proposals. To lay out next steps, an accompanying was published. See more in previous articles here and here.

Against this backdrop, HMT has published a draft SI, with provisions for the market abuse and admissions and disclosures regimes to follow in due course.

The SI proposes to amend the Regulated Activities Order (RAO) to introduce new definitions ("qualifying cryptoassets" and a sub-set of "qualifying stablecoins") along with the following associated activities:

• Stablecoin issuance
• Safeguarding
• Operating a qualifying cryptoasset trading platform
• Dealing in qualifying cryptoassets as principal
• Dealing in qualifying cryptoassets as agent
• Arranging deals in qualifying cryptoassets
• Qualifying cryptoasset staking

The new definitions seek to differentiate between crypto-native products (qualifying cryptoassets, qualifying stablecoins) and “specified investment cryptoassets�� (i.e., something that meets the definition of both a cryptoasset and another type of specified investment �� e.g., tokenisation��bond, tokenised security), tokenised e-money or tokenised deposits.

The new activities are scoped to only apply to qualifying cryptoassets and qualifying stablecoins. The only exception is the safeguarding activity which will incorporate crypto-native products as well as tokenised versions of traditional assets (specified investment cryptoassets). This is because safeguarding relates predominantly to the operational risks of operating on blockchain technology rather than financial fundamentals.

The regime would apply to UK-domiciled firms and overseas firms actively soliciting UK clients, with some exemptions where UK-authorised intermediaries are involved.

No specific provisions are included relating to Decentralised Finance (DeFi). Where activities are undertaken on a “truly decentralised basis�� �� i.e. where no person could be seen to be undertaking the activity by way of business �� the authorisation requirements will not apply.

The SI will override the existing requirement for firms involved in the cryptoasset space to register with the FCA under the Money Laundering Regulations (MLRs). HMT is proposing a 12 month transitional arrangement for firms already registered under the MLRs allowing them to continue operating while seeking full authorisation. Firms not registered will instead need to seek full authorisation before offering any services.

HMT welcomes technical comments on the draft SI by 23 May 2025. However, the content is considered “near final�� and therefore no major changes are expected before HMT legislates later this year.

The latest FCA was published a few days after the SI and seeks to provide more granularity on some of these activities. In particular, it addresses managing conflicts of interest, pre- and post-trade transparency and additional obligations to account for direct retail access in the cryptoasset market.��

The key proposals relate to:

Trading

• In general, a firm operating a trading platform for cryptoassets in the UK will need to be authorised in the UK.
• For overseas firms providing services to UK retail clients, the FCA is likely seeking to balance the need for international competitiveness and access to international liquidity pools with consumer protection. As such, it is proposing that firms operate a UK branch of the overseas firm in addition to the required authorised subsidiary.

To ensure fair access to trading and orderly markets, the FCA is suggesting:

• Cryptoasset trading platforms (CATPs) be subject to additional rules and obligations where there is retail access, algorithmic or automated trading and market making activity.
• CATPs operate trading systems according to non-discretionary rules.
• CATPs eliminate or, where this is not possible, manage their conflicts of interest. For example, the conflicts of interest arising from a CATP operator trading in principal capacity on its own platform or issuing cryptoassets to be traded on its own platform.
• CATPs ensure public access to their pre- and post-trade market data for all investors �� not just exclusive access for their clients or members.
• The FCA does not envision playing a central role in the monitoring of market abuse �� and so CATPs will not have to systemically disclose their transaction data. However, it has suggested that CATPs (and intermediaries) maintain records of their customers�� transactions for five years and be able to provide this information to the FCA on request.

Intermediaries

• Firms executing client orders should implement procedures to ensure “prompt, fair and expeditious����execution of client orders. The FCA is also proposing to implement a set of best execution rules for some client categories.
• To manage conflicts of interest, the FCA expects functional separation between the principal trading and client order execution operations of firms. Payment for Order Flow is specifically prohibited.
• Intermediaries should make the details of each executed transaction publicly available “as close to real-time as is technically possible��. The FCA is still considering whether to introduce some form of pre-trade transparency requirements.
• The FCA is considering whether crypto-specific guidance on retail customer opting up practices are needed.
• The FCA is considering a requirement that any cryptoasset needs to be admitted to trading on at least one UK-authorised CATP before any intermediary can deal in it or arrange deals for UK retail customers.

Lending and Borrowing

• The FCA is considering restricting firms from offering these products to retail consumers in their current structure but is exploring measures to reduce the risk profile so that they could become appropriate.
• The FCA is also proposing to restrict the use of credit to purchase cryptoassets �� with an exception for qualifying stablecoins. For context, many cryptoasset purchases are currently made by credit card as customers�� banks won’t allow them to pay cryptoasset firms.

Staking

In this activity, which is specific to the cryptoasset sector, the FCA sees technological, consumer understanding and safeguarding risks. It therefore proposes that:

• Firms will be liable for financial losses suffered by retail consumers where the firm has inadequately assessed its technological and operational resilience, including third-party dependencies. Firms will also be required to ensure they hold sufficient capital to absorb such losses.
• Firms must get retail consumers�� explicit advance consent on the amount of staked cryptoassets, conditions for payment, repayment, return of cryptoassets and fee-charging arrangements.
• Firms must give retail consumers key information on staking products (including implications for ownership) and the associated risks in a key features document.
• Firms will need to maintain separate wallets for consumers�� staked cryptoassets, distinct from the firm’s and other consumers�� cryptoassets.
• Firms will need to maintain accurate records of staked cryptoassets at all times.
• Firms will need to conduct regular reconciliations of staked cryptoassets.

DeFi

As above, HMT’s intention is that truly decentralised DeFi will not be regulated. However, the FCA recognise that delineating the precise perimeter of this will be difficult and therefore intent to introduce future guidance to help firms understand their obligations.

The feedback deadline for the DP is 13 June 2025. The next component of the FCA’s roadmap �� the Consultation Paper on stablecoins �� is expected in May 2025.

These developments have significant implications for firms. They will provide a clearer legal framework for engaging with cryptoassets and aim to foster increased consumer protection and market integrity.

That said, the FCA has repeatedly emphasised that, even when the regime is finalised, it will not offer the same degree of protection as in traditional markets. This is partly due to the cross-border and fragmented nature of the cryptoasset market, the pseudonymity of wallets and the lack of established financial market infrastructure for managing risks.

The rules introduce extensive new regulatory obligations that will impact business models, operational structures, and compliance processes. Firms will want to consider the following key areas:

Authorisation: Firms engaging in regulated activities related to qualifying cryptoassets and stablecoins will need to be fully authorised by the FCA for the relevant activities. Firms serving �� or marketing to �� UK retail customers must be authorised in the UK, regardless of their location.

Group structure:��Businesses offering crypto services through separate entities may need to rethink how they manage risk, governance, and oversight across regulated and unregulated parts of the group.

Compliance Burden: For crypto-native firms these frameworks will result in new explicit compliance requirements across all areas of their business model for the first time. This will be a significant uplift to the existing MLR registration process. For traditional financial services firms, despite having existing processes already in place, these will need to be adapted to address the novel elements of crypto.