Navigating Cryptocurrency and Stablecoin Rules: U.K.'s Fresh Legislative Measures on Digital Currencies
London's finitech scene blew up last week with U.K Chancellor Rachel Reeves announcing tough new rules for firms offering cryptoassets services. The goal? Boost investor confidence, drive growth, and protect consumers from scams and fraud.
It's no secret that crypto has gone mainstream, with 12 percent of U.K. adults now owning or having owned it, up from just four percent in 2021. Needless to say, the government is worried about the risks cryptoassets present to retail customers.
Chancellor Reeves declared, "Our Plan for Change makes Britain the best place in the world to innovate—and the safest place for consumers. Robust rules around crypto will boost investor confidence, support the growth of Fintech, and protect people across the U.K."
Crypto firms with U.K customers will have to meet clear standards on transparency, consumer protection, and operational resilience—standards just like those for traditional finance.
The new rules, published by HM Treasury, are being deployed as a Statutory Instrument (SI) under the Financial Services and Markets Act 2023 and are currently in draft, open for comments until May 23rd.
Very soon after, the Financial Conduct Authority (FCA) followed with DP25/1: Regulating cryptoasset activities, which also welcomes public comments, until June 13th.
Naturally, the industry isn't holding back its reactions to these new proposals, with some optimistic and others expressing concerns.
Reeves's announcements also marked a stronger alliance between the UK and U.S. When it comes to crypto and digital assets policy, both nations will work together through the upcoming U.K.-U.S. Financial Regulatory Working Group.
The announcement was reinforced by Bank of England Deputy Governor Sarah Breeden, who highlighted the importance of cross-border collaboration during a panel session at the Point Zero Forum in Zurich.
Cross-border collaboration, coupled with the U.K.'s already announced trade deal with the U.S., leaves industry players anticipating a robust cross-border relationship between these two powers when it comes to crypto and digital assets policy and regulation.
Dante Disparte, chief strategy officer and head of global policy and operations at Circle, puts it this way: "The clarity of purpose in the U.K. government, combined with new rules coming into force for digital assets, will undoubtedly play to strengths in the U.K. economy, creating a key opportunity to forge U.S-U.K. regulatory harmonization and investment opportunities."
Far Across the Channel
The SI focuses on regulating cryptoassets and stablecoins. Its key provisions include:
- Creation of a new category of specified investments covering qualifying cryptoassets and stablecoins.
- A new specified activity of stablecoin issuance, with requirements for authorization.
- Delineation between crypto and traditional securities, clarifying the U.K.'s regulatory perimeter. The exemption of pure DeFi is also noted.
While the U.K.'s proposed regulations show some similarities to global regimes like the E.U.'s MiCA, the pending U.S. Senate Banking's GENIUS Act, and Abu Dhabi's Fiat Referenced Token Regime, industry policy analysts point out discrepancies that are a source of concern for the U.K. from a competition perspective.
Paolo Ardoino, the CEO of Tether, praises the U.K.'s proposals but expresses caution: "Recognizing the role of overseas-issued tokens is a sensible move and reflects a more pragmatic approach than what we've seen in the E.U. under MiCA. However, it's important that the U.K. doesn't replicate some of MiCA's flaws which risk stifling innovation and undermining financial stability."
While concerns about MiCA's shortcomings persist, it's worth noting that MiCA is generally considered one of the most comprehensive global frameworks for cryptoassets. Its regulatory certainty and legal clarity are attracting large institutional players.
Jean-Marc Stenger, CEO of Societe Generale - FORGE, concludes, "Europe has been at the forefront in terms of regulation. The entry into force of the MiCA regime reshapes the market in the E.U. and opens up a window of opportunity. This is the first time that we have a clear, homogeneous, relatively broad, and ambitious framework that is directly applicable throughout the E.U."
There's a risk that the U.K.'s divergence from the E.U. or other jurisdictions like U.A.E. and Singapore, as they introduce their own stablecoin regulatory regime, may cause operational inefficiencies, making an unattractive market for global firms to either establish themselves or expand into.
The growth potential is crucial for the U.K. to make a competitive offering as it positions itself for a slice of the global crypto and digital assets market.
Let the Games Begin
According to Chainalysis, the stablecoin market has matured significantly across the world, surpassing Bitcoin, and is now preferred for everyday transactions. Chainalysis attributes this growth to stablecoin transactions below $1 million, which they classify as retail (or non-institutional), though institutional use of stablecoins is increasingly on the rise.
Regions like Latin America and Sub-Saharan Africa are embracing USD stablecoins as a hedge against local monetary instability, providing a more reliable means of transacting and preserving value. In these regions, retail adoption of stablecoins is mainly driven by their practicality for low-cost remittances, secure savings in regions with volatile currencies, and accessibility to DeFi services like lending and staking.
Matthew Osborne, Ripple's U.K. & Europe policy director, offers his take: "Thriving crypto hubs like Singapore and the U.A.E show what's possible when ambition meets urgency. We look forward to the U.K Government and regulators working at pace to get this rulebook live, providing the regulatory clarity that is essential for serious institutional participation in the sector and the U.K.'s continued global leadership in financial services."
The Good, the Bad, and the Stable
In terms of global stablecoin legislation, jurisdictions compare factors like regulatory perimeter, legal classification, who can issue, reserve requirements, who supervises, and KYC/AML requirements.
Additional factors of focus include disclosure and transparency requirements, reporting frequency, redemption, dispute mechanisms, passporting/reciprocity, requirements for non-local issuers, systemic vs non-systemic classification, and cyber and operational resilience.
The FCA's discussion paper explores these and many other risks, addressing not only stablecoins but also in-scope cryptoassets more broadly, and provides ideas and solutions for industry feedback.
There is a willingness to confront and accept the realities of cryptoassets and stablecoins as being global in nature, as well as the global structures of the firms issuing and providing services in them. A proposed dual branch/subsidiary model aims to enable crypto asset trading platforms (CATPs) to pool liquidity at a global level while servicing retail clients from a local, regulated entity.
However, there remain multiple areas awaiting clarification. The treatment of payment systems using stablecoins remains uncertain, with updates to the Payment Services Regulations at some unspecified future date.
Potential retail restrictions in certain activities or bans run the risk of isolating the U.K., reducing its competitiveness.
The recent publications mark the beginning of a lengthy and complex process of consultations, feedback, and revisions of the proposals, and it will be essential for the U.K. industry ecosystem to participate and feed into this process collaboratively, both among firms themselves and with the regulators, for success within the short timelines envisioned.
Jannah Patchay, an industry policy consultant and executive in residence at Global Digital Finance, concludes, "HM Treasury and the FCA have signaled a clear intent and enthusiasm for engaging in constructive discussion with industry around these proposals, which we welcome. There are some crucial design choices being made at this stage of the regulatory framework's development, which will have a significant bearing on the future direction of cryptoasset and stablecoin market development in the U.K."
Close the Gap
For the U.K. to be an attractive crypto jurisdiction for stablecoins, both locally issued and those backed by other currencies, it must close the gap with other regimes to deliver cooperative agreements with jurisdictions where frameworks already exist, and concentrate on driving and delivering growth in digital assets.
Elise Soucie Watts, executive director of Global Digital Finance, offers her thoughts: "At the end of the day, the successful digitization of financial markets depends on global scalability. Fragmented regulation leads to inefficiencies, duplication, and loss of global market potential. To achieve functional equivalence in these markets, jurisdictions need to shift their mindset. Reciprocity isn't charity—it's mutual self-interest and should be part of the growth strategy for any nation that wants to expand its digital markets."
In conclusion, it is clear that digital growth is one of the Government's goals. To achieve this, they will need to drive on quickly toward clarity. The SI is one step forward, but as more detailed proposals come through from the FCA and BoE, it's time for continued and detailed industry engagement to both mind and close the gap with other regimes to make the U.K. an attractive destination for crypto and digital asset growth.
- Crypto regulations in the U.K. are aimed at boosting investor confidence, driving growth in the Fintech sector, and protecting consumers.
- The U.K. government's plan includes robust rules around crypto, hoping to make Britain the safest place for consumers and the best place for innovation.
- Dante Disparte, from Circle, believes that the U.K.'s new rules for digital assets will create a key opportunity for U.S.-U.K. regulatory harmonization and investment.
- The SI focuses on regulating cryptoassets and stablecoins, with key provisions such as creating a new category for qualifying cryptoassets and stablecoins and delineating between crypto and traditional securities.
- Paolo Ardoino, CEO of Tether, praises the U.K.'s proposals but expresses concern about the risk of replicating some of the E.U.'s MiCA flaws that might stifle innovation and undermine financial stability.
- Stablecoins have surpassed Bitcoin in global transactions and are preferred for everyday transactions, particularly in regions like Latin America and Sub-Saharan Africa due to their practicality for low-cost remittances and DeFi services.
- Matthew Osborne, from Ripple, suggests that the U.K. Government and regulators work at pace to provide the regulatory clarity essential for institutional participation in the sector and the U.K.'s continued global leadership in financial services.
- To be an attractive crypto jurisdiction for stablecoins, the U.K. needs to close the gap with other regimes, foster cooperative agreements with jurisdictions where frameworks already exist, and concentrate on driving and delivering growth in digital assets.
