The UK’s long-promised crypto regulatory regime moved closer to reality this week, as the Financial Conduct Authority (FCA) unveiled its consultation which will ultimately define how crypto companies operate in Britain.
Together with the UK Treasury’s legislation, the proposals form the backbone of a framework which is due to come into force in October 2027. For policymakers, the aim is to balance growth and innovation with market integrity and consumer protection. The challenge for the industry is navigating an 18-month transition period in which the destination is clearer than ever, but still far away.
“This is it for the UK,” Dea Markova, director of policy at crypto infrastructure company Fireblocks, said in an interview. “This is the definitive regime to regulate the issuance and intermediation of crypto assets.”
From discussion to definition
The latest consultations should be seen as part of a longer, carefully sequenced process, according to Sébastien Ferrière, financial regulation lawyer at Pinsent Masons.
For over a year, the UK has been working on a regulatory roadmap that expands the FCA’s jurisdiction over crypto. The first step was legislative: the regulated activities defined by the Treasury determine what falls within the scope. Only then can the FCA impose detailed authorization requirements and rules.
“Over the past year, things have really started to take shape,” Ferrière said. “We have followed a series of consultations, but they now form a coherent framework. »
Earlier phases have focused on the issuance and custody of stablecoins, prudential requirements such as capital and liquidation planning, and the application of the FCA’s existing obligations – governance, systems and controls, operational resilience – to crypto businesses. This week’s consultations focus directly on markets: trading platforms, intermediaries, staking, decentralized finance, admissions and disclosures, and market abuse rules specific to cryptocurrencies.
Overall, Ferrière said, the FCA is attempting to bring the architecture of traditional financial regulation to crypto markets, while adapting it to reflect the distinct risks of the technology.
A hybrid regulatory model
One of the most consequential design choices is the UK’s decision to extend existing financial services rules to cryptocurrencies, rather than writing a stand-alone regulation from scratch, as the European Union (EU) did with its Markets in Crypto Assets (MiCA) regulation.
This distinction is important, but not in a simplistic way. Ferrière described the FCA’s approach as hybrid. The cross-cutting obligations – principles of integrity, conflict management and fair treatment of customers – are applied largely as they are. However, the rules for the market are written specifically for crypto.
“There is a new admission and disclosure regime as well as a new market abuse regime,” Ferrière said. “They don’t just remove the securities rules and apply them wholesale. They echo the existing framework, but they are written to reflect the parameters of crypto assets and crypto services.”
The regulator, he added, is walking a tightrope. Being more permissive than traditional markets would invite criticism that crypto gets preferential treatment. Being more restrictive could push activity overseas. The stated objective is “same risks, same results”, even if the mechanisms differ.
Second-mover advantage and its limits
For Markova, the UK’s most important asset is timing. By following in the footsteps of the EU and amid the ongoing debate in the United States, Britain has been able to observe how regulatory decisions translate into practice.
“The UK is very proactively trying to learn lessons from other countries,” she said. “This can be seen in the proposals and in the political narrative. »
This narrative is important, Markova argued, because many decisions made by banks and asset managers integrating crypto services are ultimately risk judgments made in areas where the law is not black and white. A favorable political context leads to different outcomes than one dominated by fear of rule enforcement.
She also highlighted several areas where the UK has departed from EU precedent, including the explicit treatment of staking, lending and borrowing, and a more pragmatic recognition that crypto liquidity is global rather than tied to national locations.
Unresolved pressure points
Despite the progress, significant uncertainties remain, particularly around stablecoins and DeFi.
Regarding stablecoins, Markova said policymakers have recognized the need to distinguish between payments and investments, thereby avoiding the trap of regulating merchants as financial intermediaries simply for accepting digital tokens. But deeper questions remain unanswered: how stablecoins issued abroad will be treated compared to those denominated in pounds, what due diligence obligations will fall on platforms, and how a conservative settlement policy could affect their adoption.
DeFi poses an even more difficult conceptual challenge. The FCA has signaled that sufficiently centralized activity will be regulated like traditional intermediation. But many DeFi services are not by design.
“Identifying a responsible entity and applying a conservation framework does not always address the real risk,” Markova said. “That’s why DeFi regulation hasn’t really been resolved anywhere.”
Proportionality and global reach
David Heffron, also a financial regulation lawyer at Pinsent Masons, defined the overall test as one of proportionality. The FCA insists it wants a competitive and innovative market, but the cumulative burden of conduct rules, operational resilience standards and capital requirements will determine the UK’s attractiveness to global businesses.
“It’s too early to make a final decision,” Heffron said. “But it’s an important market, and I’d be surprised if international operators didn’t want to access UK liquidity.”
Ferrière highlighted another issue likely to gain importance: extraterritorial reach. Determining what constitutes “operating in the UK” is already complex in traditional finance. In the crypto space – inherently global and digital – companies could find themselves inside the regulatory perimeter sooner than expected, forcing them to make decisions about geo-blocking, restructuring or establishing a presence in the UK.
What would success look like?
From the FCA’s perspective, success would mean more informed investors, reduced market abuse, greater trust and sustainable competition. The new admission and disclosure rules aim to standardize information about crypto assets, while the market abuse provisions aim to combat manipulation and information asymmetries – both prerequisites for deeper institutional participation.
The cost is compliance, and the regime is explicitly not designed to eliminate risk. Instead, it seeks to ensure that participants engage in crypto markets with clearer information and stricter safeguards.
For now, the UK has crossed an important threshold: moving from an endless “framework” to a concrete regulatory end state. Whether its second-mover strategy provides a competitive advantage – or simply delays clarity – will become clear as companies decide whether or not to build the UK’s crypto future before 2027.
