UK’s emerging cryptoasset regulations: trading, custody, issuance, and promotions in focus (Part 1)

As the UK develops its cryptoasset regulations, Charles Kerrigan from CMS explores the policies shaping the markets.

 

In a three-part series, he discusses upcoming rules, their effects on financial institutions, and how applying traditional financial rules to crypto will influence products and markets.

Introduction

The UK’s crypto regulatory path is being laid out. In early 2023, HM Treasury launched a consultation on a new crypto regulatory framework. By mid-2023, Parliament gave regulators new powers (via the Financial Services and Markets Act 2023) and extended financial promotions rules to cover cryptoassets. After gathering industry feedback, the government published detailed proposals in late 2023 and confirmed in late 2024 that it will proceed largely as planned, with the exception that there would no longer be a ’phased approach’. Draft legislation was released in April 2025, and the FCA has completed various consultations on the finer rules, with further consultations planned. The full regime is expected to go live in late 2026.

UK’s proposed crypto framework: an overview

Rather than adopting a separate rulebook for crypto, the UK is integrating cryptoassets into its existing financial regulatory framework. Under the draft legislation – the Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025 – ’qualifying cryptoassets’ will be added as a new category of regulated instruments. This term is defined broadly to cover any cryptographically secured digital representation of value or rights that is fungible and transferable, using a distributed ledger or similar technology. In practice, this means unbacked cryptocurrencies and tokens (such as Bitcoin, Ether, or new utility tokens) will fall within the scope, except for those already regulated elsewhere (for example, tokenised securities, e-money tokens, or other digital assets already captured under existing rules are carved out). Non-fungible tokens (NFTs) or purely private, untradeable tokens will generally remain outside financial regulation, unless used in regulated activities.

The UK is taking an ’activities-based’ approach. Instead of regulating cryptoassets by type, it will regulate the activities undertaken in relation to cryptoassets – mirroring how traditional financial services are regulated. Many of the proposed regulated crypto activities intentionally echo familiar financial services concepts (sometimes with crypto-specific tweaks). This approach embodies the principle of ’same risk, same regulatory outcome,’ aiming to hold crypto businesses to equivalent standards as traditional firms where the risks are similar. For example, a crypto exchange facilitating trades should uphold transparency and fairness in the same way as a regulated trading venue in securities markets. In November 2024, the new UK government abandoned plans to introduce a ’phased approach’ for crypto legislation. Previously, there were plans for a first phase that would cover fiat-backed stablecoins, especially in payments, while the second phase was expected to extend to broader crypto activities, including exchanges, custody, and more exotic tokens. The government now plans to legislate for stablecoins at the same time as the wider cryptoasset regime. Notably, however, stablecoins will not be brought into the scope of UK payments regulations.

New regulated activities for crypto

Under the draft regime, any person or firm carrying on the following activities ’by way of business’ in or to the UK will require FCA authorisation:

• Operating a cryptoasset trading platform – running a system that brings together multiple buying and selling interests in cryptoassets in a way that results in transactions (whether exchange of crypto-crypto, crypto-fiat, or crypto-other assets). Crypto exchanges and trading venues fall in this category. The draft rules are technology-neutral, so both centralised order-book exchanges and certain decentralised finance (DeFi) platforms (if there is a central operator or ’controlling mind’) would be captured. Trading platforms will be expected to meet similar standards to traditional trading venues – fair and orderly trading, transparent rules, surveillance for abuse, operational resilience, etc., albeit adapted for crypto’s unique features.
• Dealing in cryptoassets – making a market in cryptoassets, trading as principal (for one’s own account), or acting as agent (broker) in cryptoasset transactions becomes regulated. Notably, this category explicitly includes crypto lending and borrowing activities as a form of dealing as principal. For instance, if a firm runs a crypto lending program or an OTC trading desk that provides liquidity, it will require authorisation. Likewise, broker-dealers and market makers in crypto are caught. (The FCA has flagged that such high-risk lending products may be restricted from retail customers under the new rules without major risk mitigations.)
• Arranging or facilitating deals in cryptoassets – this aspect covers intermediaries that arrange transactions between others. The scope is broad: from matching platforms and introducer services to operators of crypto lending platforms (bringing together borrowers and lenders). Even ’white-label’ front-end websites that route orders to exchanges could be regarded as arranging deals. Pure technology providers (software-only communication networks that do not actively facilitate the terms of a deal) will be outside the scope, but firms with a more active matchmaking role will be in scope.
• Safeguarding or custody of cryptoassets – providing custody or storage services for clients’ crypto will become a regulated activity. In legal terms, ’safeguarding’ means having control of a cryptoasset (or the means to access it, like private keys) on behalf of another such that you can transfer or otherwise dispose of the asset. Both crypto exchanges that hold customer assets and standalone custodians/wallet providers are targeted here. The rules make clear that if an entity can unilaterally move a client’s crypto (even in multi-sig or smart contract arrangements), it is likely a custodian. However, true self-custody (where only the user possesses the keys, and no third party can transact) remains outside the regulatory perimeter. More below on custody obligation.
• Issuing or promoting cryptoassets – the regime will also capture crypto issuance activities. This has two main components: (1) Issuing or maintaining a stablecoin (discussed separately as part of the stablecoin rules), and (2) making a public offer of a cryptoasset or seeking its admission to a trading venue. In other words, if a project conducts an ICO/token sale to the public, or if it wants its token listed on a UK-regulated exchange, it will have to follow new disclosure and admission standards (analogous to a prospectus or listing process) once those rules are in force. At present, offering unregulated tokens to the public is largely unrestricted in the UK, but under the new framework, an Admissions & Disclosure regime for crypto will be introduced to ensure investors get the necessary information. The specifics are still being developed (HM Treasury has said rules on admission and ongoing disclosure requirements for crypto will come in a separate instrument, likely aligning with standards used in securities markets). Issuers of fiat-backed stablecoins used in payments will need FCA authorisation as well, as discussed in the Issuance section.
• Staking services – the UK plans to regulate certain crypto staking activities. The draft rules create a regulated activity of ’[m]aking arrangements for qualifying cryptoasset staking’, covering any service where customers’ tokens are used in blockchain transaction validation (proof-of-stake networks) to earn rewards. This is intended to catch providers of delegated or pooled staking, and even ’liquid staking’ tokens programs. If a firm takes custody of user tokens to stake them (or helps users pool together for staking rewards), it will require authorisation. The government’s consultation feedback showed an intention to accelerate work on staking regulation, given the emerging risks and different models in the market. Carve-outs are likely for purely technical facilitators (e.g., a software wallet that connects users who wish to stake, without the provider actively controlling assets) and for individuals doing solo home staking on their own nodes. But commercial staking-as-a-service platforms will come under oversight. The UK is among the first major jurisdictions to pull certain staking and yield products inside the regulatory perimeter – a notable contrast to the EU, where MiCA leaves some of these aspects to national discretion.

These new regulated activities closely track those consulted on by HM Treasury in early 2023, with some refinements (e.g., clearer inclusion of staking and lending). Firms performing any of these activities ’in or to’ UK customers will need to be authorised; in other words, there is extraterritorial reach: overseas exchanges, dealers, or custodians dealing with UK clients (especially retail) must get UK authorisation or stop serving UK users. The usual ’overseas persons’ exemption (which lets foreign firms interact without a licence in some wholesale scenarios) will not apply for most crypto activities involving UK consumers, limiting its application to particular business-to-business situations. In practice, a non-UK crypto platform facing UK retail may need to ring-fence a UK business or register a local entity to continue operating. Businesses only dealing through UK-authorised intermediaries or only with non-UK clients might have more leeway, but the intent is clear: if you engage with the UK market, you fall under UK rules.

Regulating crypto trading platforms

One of the centrepieces of the UK’s plan is imposing regulatory standards on crypto trading venues. In the future, any crypto exchange facilitating trades must be authorised and will be subject to obligations mirroring those of traditional trading venues (like stock exchanges or MTFs).

Authorisation & location: Platforms operating in the UK or serving UK users will need to be authorised by the FCA as a Cryptoasset Trading Platform (CATP). The FCA has indicated it wants these platforms to have a substantial presence in the UK – likely meaning UK incorporation or a local subsidiary for major retail-facing exchanges. Doing business ’in or to’ the UK triggers the licence requirement, so even an overseas exchange advertising or onboarding UK customers falls in scope. The overseas persons exemption (which currently allows foreign securities exchanges to deal with UK professional clients without a UK licence) will largely not apply to retail crypto dealings. However, solely dealing through a UK-authorised firm (e.g., an overseas exchange that only takes trades via a UK broker) might avoid direct licensing, and institutional-only business may retain some exemptions.

Rulebook for exchanges: Once authorised, crypto trading venues will be expected to comply with a comprehensive set of rules to ensure market integrity, consumer protection, and operational resilience, akin to the rules for regulated financial markets. According to the FCA’s crypto roadmap, key areas for trading platform rules include:

• Access and onboarding: defining who can use the platform (retail vs. institutional clients) and ensuring proper onboarding (KYC, suitability checks, etc.). Retail access may be coupled with appropriateness tests, given the high-risk nature of crypto.
• Systems and controls: platforms must have robust technology and controls to handle trading volume safely. Expectations around cybersecurity, outage handling, and incident reporting will be high (cyber resilience is a top concern given past hacks in crypto markets).
• Fair trading and market integrity: requirements to prevent manipulative trading and ensure fair pricing. This means surveillance systems to detect market abuse (wash trading, spoofing, insider dealing on crypto, etc.), as well as rules against improper conduct by the venue or its participants. HM Treasury has confirmed a Market Abuse Regulation (MAR) regime for cryptoassets will be introduced, extending the principles of the existing UK MAR to crypto trading. Trading venues will need to implement measures to detect and report suspicious transactions and cooperate with regulators on enforcement.
• Transparency and reporting: there will likely be requirements for pre-trade and post-trade transparency, meaning publishing quotes or price information and reporting trade data, to the extent appropriate for crypto. The FCA is considering how far to import MiFID-style transparency rules (which may be challenging in fragmented crypto markets). Platforms will also be required to report transaction data to regulators and perhaps to users for tax and record-keeping purposes.
• Conflicts of interest and segregation: many crypto exchanges today perform multiple roles (exchange, broker, market maker, custodian, etc.). Regulators have flagged the need for robust conflicts of interest policies. They may require functional separation – for example, an exchange’s own proprietary trading desk should be segregated from its client order book, to prevent abuse. In the future, regulators might even demand structural separation if a single group provides multiple crypto services (akin to how large banks separate their research, trading, and advisory arms).
• Consumer protection rules: exchanges serving retail will likely be subject to client asset safeguards, disclosure of risks to customers, fair terms of business, and even the new Consumer Duty standards the FCA is rolling out across finance. They will also need procedures for handling customer complaints and redress. Advertising by exchanges must comply with financial promotion rules (see further below). Additionally, operational resilience requirements include having disaster recovery plans, incident response, and minimal downtime – outages at major crypto exchanges have drawn regulatory ire in the past.

Overall, expect UK-authorised crypto exchanges to start resembling regulated trading venues, both in terms of oversight and in internal governance. This represents a significant uplift from the current position, where UK crypto exchanges only register for anti-money laundering (AML) supervision. Many will welcome the clarity and the ’badge of credibility’ authorisation brings, but the compliance costs will rise accordingly.

In the next installment, Part 2, we will explore the UK’s new rules for crypto custody, which require FCA authorisation and stricter safeguards to protect client assets.

Stay tuned!

 

About the author

The Blockchain Industry in the UK Landscape Overview names Charles Kerrigan as a leading influencer in the blockchain. He is part of teams working on investing and setting standards for emtech in EMEA, the US, and APAC.  At CMS, Charles is part of the firm’s specialist crypto and digital assets team.  He is on the board of the Investment Association Engine, a NED for various fintech and regtech firms, and teaches entrepreneurship in the Computer Science Department at UCL.  He widely published in mainstream and trade press and is the author of the textbook Crypto and Digital Assets Law and regulation.