UK revises crypto regulation approach and timetable

The FCA has released a crypto roadmap, sharing its plans for developing cryptoasset regulation over the next couple of years. It follows a recent speech in which the Economic Secretary to the Treasury, Tulip Siddiq, committed to implement a cryptoasset regulatory regime but also hinted at important changes to the previous government's approach.

• All together now: Last year, HM Treasury's plan was to regulate cryptoassets in phases, prioritising certain activities involving fiat-backed stablecoins before moving on to regulate other cryptoassets. Now the government has ditched the phased approach and plans to introduce new regulated activities for stablecoins at the same time as the rest of the cryptoasset regulatory regime.
   
• Hold up: The previous government had initially promised to release the first round of cryptoasset legislation in early 2024. This did not materialise before the election. The new government now says that draft legislation will follow “as early as possible” in 2025.
   
• Stabilising solution: The phased approach involved extending the scope of UK payments regulation to catch certain stablecoin activities. The new government fears that this approach prejudged the direction and pace of the market and would have placed a disproportionate regulatory burden on fledgling innovation. The speech suggests that the proposals to regulate the issuance and custody of certain stablecoins will go ahead as previously envisaged. These rules will be set by the FCA.
   
• Stake out: Tulip Siddiq says that it does not make sense for staking services to be treated as a collective investment scheme. She suggests that the government will remove this legal uncertainty.
   
• Bridging the divide: Instead of seeing traditional financial services and cryptoassets as two “separate islands”, the speech argues that the two have the potential to play an integrated role in each other’s future, to their mutual advantage. It will be interesting to see exactly what this means in practice, particularly in light of comments previously raised by the Bank of England in relation to potential contagion risks that may arise from interlinkages between the two worlds as well as highly conservative international standards on banks’ prudential treatment of cryptoasset exposures.

When it lands, the draft legislation will indicate the scope of the UK’s future regulatory regime for cryptoassets. The full impact of that regime will, however, only become clear once the regulators finalise the rules that they intend to apply to regulated cryptoasset issuers and service providers.

The FCA has shed light on how and when those rules will be developed. Its crypto roadmap was published alongside its latest crypto research which shows a further increase in crypto ownership in the UK. According to the roadmap, we can expect discussion papers on admission to trading and market abuse rules before the end of this year, followed by a significant package of proposals in the first half of 2025. 

This package will include draft rules for stablecoins and custody, as well as discussion papers on topics such as staking, trading platform rules and prudential considerations for cryptoasset exposures.