UK updates cryptoasset regulation plans: Government promises legislation in 2024

The government has responded to its consultation on a future regulatory regime for cryptoassets. In general the government intends to take forward the approach it proposed earlier this year.

• Vision unchanged: The government’s ambition to make the UK a global hub for cryptoasset technologies remains “steadfast”. The proposed regime aims to give firms clarity on the legal framework for cryptoassets.
• Licence requirement: The plan is still to include cryptoasset activities within the existing financial services framework, rather than creating a standalone bespoke regime (like the EU’s MiCAR). This means that cryptoasset firms will need to be authorised under the Financial Services and Markets Act.
• No automatic transition for registered firms: Cryptoasset businesses that are currently registered with the FCA will need to apply to be authorised under the new regime. The FCA will provide more detail on how it will assess cryptoasset licence applications “in due course”.
• Scope clarified: The government confirms that activities relating to truly unique NFTs that are more akin to digital collectibles or artwork should not be subject to financial services regulation. Cryptoassets that are already regulated, such as security tokens representing debt or equities, would also be out of scope of the proposed regime.
• Territorial scope: The government still plans to consider firms providing cryptoasset activities “in or to” the UK to be in the scope of the proposed regime.
• Timing update: We can expect legislation to be introduced in 2024. This does not mean that cryptoasset activities will be brought into the regulatory regime immediately when the legislation is made. Transitional arrangements should allow time to prepare before the regulatory regime becomes effective.
• Market abuse: The government has suggested staggering the implementation of certain information sharing obligations for cryptoasset trading venues. This will be factored into the upcoming legislation.
• More work to be done on staking: An engagement programme is informing the government’s approach to the future regulatory treatment of staking, which includes developing a clear definition of cryptoasset staking on a proof-of-stake blockchain and a taxonomy of the different staking business models currently in the market.
• DeFi regulation not on the agenda: The government has concluded that it would be premature for the UK to regulate decentralised finance.
• Other developments: Several important legal developments have taken place since the government consulted on its proposed regime in April 2023, including the introduction of a financial promotion regime for cryptoassets and the Law Commission’s report on digital assets.
• Stablecoins update: The government has also published an update on its plans for the regulation of fiat-backed stablecoins. The plan is to prioritise regulating these stablecoins where they are used in UK payment chains as a first phase of cryptoasset regulation to take effect before the wider proposed regime. Legislation is promised on this by early 2024 at the latest. The government has also responded to its consultation on managing the failure of systemic stablecoin firms.