What’s Next for the UK FCA’s Cryptoasset Regime

The UK Financial Conduct Authority (FCA) is transitioning from a narrow focus on Anti-Money Laundering (AML) registration for crypto firms to implementing a comprehensive regulatory framework covering consumer protection, market integrity, and systemic risk. This shift, enabled primarily by the Financial Services and Markets Act 2023 (FSMA 2023), represents a phased integration of cryptoassets into the existing financial services rulebook.

### 1. Enhanced Financial Promotions and Enforcement

The immediate future is dominated by the enforcement of the Financial Promotions Regime, which came into effect in October 2023. This regime mandated that all communications marketing cryptoassets to UK consumers must be clear, fair, and not misleading, and must adhere to strict requirements, including risk warnings and, potentially, 24-hour cooling-off periods for first-time investors.

**Next Steps:** The FCA is actively monitoring compliance and has already issued numerous warnings and taken action against non-compliant entities, especially overseas firms targeting UK consumers. Firms should anticipate ongoing scrutiny of their promotional materials and product design, with the FCA continuing to release detailed guidance and examples of poor practice to close compliance gaps.

### 2. Stablecoin Regulation: The First Phase of Integration

Stablecoins are positioned as the first major class of cryptoassets to be fully regulated under the new framework. The legislation aims to bring stablecoins used as a means of payment within the regulatory perimeter, treating them similarly to e-money. This is viewed as Phase One of the broader regulatory rollout.

**Next Steps:** The regulatory framework for stablecoins will likely involve coordination between the FCA and the Bank of England (BoE). The BoE is expected to oversee stablecoins that are designated as ‘systemically important’ for financial stability, while the FCA will regulate issuance, custody, and broader activities related to payment-focused stablecoins. Final rules defining capital requirements, governance standards, and reserve asset backing are expected soon.

### 3. Expansion of the Regulatory Perimeter

Looking ahead, the largest legislative project involves defining cryptoassets as ‘specified investments’ and bringing core crypto activities—such as operating a trading venue, custody, lending, and market abuse—under the scope of regulated activity. This mirrors the structure of the traditional Markets in Financial Instruments Directive (MiFID).

**Next Steps:** The FCA will adopt a phased approach to implementing these rules, likely starting with non-fungible tokens (NFTs) and utility tokens excluded initially, while focusing on tokens that function similarly to securities or specified investments. Firms engaging in these activities will eventually be required to seek specific regulatory authorization, subjecting them to comprehensive requirements concerning capital adequacy, governance, and operational resilience.

### 4. Innovation and Infrastructure

To balance regulation with innovation, the UK is focusing on foundational infrastructure. The Digital Securities Sandbox (DSS) allows firms to test new technologies, such as tokenized assets and distributed ledger technology (DLT) market infrastructure, in a controlled environment.

**Next Steps:** The DSS demonstrates the UK’s commitment to facilitating institutional adoption and reducing friction in capital markets. The FCA will use lessons learned from the DSS to inform permanent legislation regarding DLT market infrastructure, potentially enabling the tokenization of traditional assets on a larger scale.

### Conclusion

The UK’s trajectory is clear: the crypto sector is moving from a lightly regulated periphery to a deeply integrated component of the financial system. This requires crypto firms to rapidly professionalize and align their operations, governance, and internal controls with the high standards expected of traditional financial institutions. The coming years will be characterized by the FCA operationalizing and enforcing these comprehensive standards across custody, trading, and lending activities.

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