UK sets out crypto regulatory proposals

Cryptocurrencies will be regulated in a similar way to other financial assets like stocks and shares under new legislation proposed by the UK government on 15 December.

This will mean that companies selling cryptocurrency (‘crypto’) products, including cryptocurrencies like Bitcoin or crypto ETNs that track the prices of cryptocurrencies, will be subject to rules such as transparency standards and other consumer protections.

“By giving firms clear rules of the road, we are providing the certainty they need to invest, innovate and create high skilled jobs here in the UK,” said chancellor Rachel Reeves. Reeves added that millions would receive strong consumer protections thanks to the legislation and that “dodgy actors” would be locked out of the UK market.

Draft legislation to introduce the new rules under the 2023 Financial Services and Markets Act was tabled on 15 December. The Treasury hopes to have the new rules finalised by mid-2026, before going live in the second half of 2027, according to the FT.

The changes mean that “momentum is starting to snowball as we head towards 2026 – which will be the year the UK becomes serious about establishing itself as a genuine crypto hub,” said Nick Jones, CEO of digital asset platform Zumo.

“Many in the industry have been loudly lobbying for the appropriate regulatory framework that will facilitate new avenues of economic growth, so this is very welcome news,” Jones added.

FCA consultation on UK crypto regulations

The UK’s financial regulator, the Financial Conduct Authority (FCA), announced on 16 December that it is looking at regulating aspects of the crypto market for the first time. It aims to strike a balance between facilitating innovation and protecting consumers.

“Regulation is coming – and we want to get it right,” said David Geale, executive director for payments and digital finance at the FCA. “Our goal is to have a regime that protects consumers, supports innovation and promotes trust.”

The FCA is consulting on the proposals until 12 February.

Its consultation will focus on the following areas:

• Admissions and disclosures: ensuring that consumers have sufficient information before investing in cryptoassets.
• Market abuse: ensuring market fairness by preventing insider trading and manipulation.
• Ensuring safe and reliable trading standards on cryptoasset trading platforms and exchanges.
• Requirements for brokers and middlemen to act responsibly when dealing in cryptoassets.
• Ensuring that the risks are clear when firms offer staking (a process where investors can generate returns on their crypto by locking it up for a period of time).
• Lending and borrowing – rules to protect both crypto lenders and borrowers.
• Exploring whether the rules that govern traditional finance should also apply to decentralised finance (also known as ‘DeFi’).
• Prudential requirements: ensuring firms can better manage their risk through appropriate financial safeguards.

“The new laws will bring greater transparency to the sector, keeping bad actors at bay while ensuring consumers benefit from the robust protection they rightly expect from any financial product or service,” said Jones.

There has, until now, been uncertainty over the status of crypto investments in the UK. Complex HMRC rules mean that it could be risky for investors to buy crypto ETNs in a stocks and shares ISA.

In August, former UK chancellor George Osborne warned in an article for the FT that the UK was being “left behind” on crypto.