What's next for UK law and regulations on cryptoassets?

In light of the above, the UK's cryptoasset regulatory landscape will now likely develop at a fast pace. Firms must closely monitor these developments to understand their implications on business operations and start proactively preparing for the upcoming changes. 

Outcome of crypto roundtables

Alongside the crypto roadmap, the FCA published the outcome of its roundtables it conducted earlier this year where views were gathered from over 100 organisations involved in the crypto industry. The FCA groups the discussion areas into the below three categories:

• Admissions and disclosures
  • Participants supported an industry-led admissions and disclosures regime tailored to different business models.
  • Decentralised cryptoassets, those with no central issuer, may create challenges when complying with disclosure and due diligence requirements as crypto trading platforms can't communicate with an issuer and must rely on publicly available information.

• Market abuse regime
  • The importance of considering the international context of crypto market abuse was highlighted by participants, as well as the challenges posed by data privacy laws across jurisdictions for sharing market abuse information.
  • There were varying views on how to appropriately account for decentralised cryptoassets, particularly in relation to disclosures of important information. It was suggested by some to adopt disclosure rules like those in traditional finance, while others raised concerns about the difficulties of applying this approach to crypto

   

• Trading platforms and intermediaries
  • Participants welcomed the distinction between retail and wholesale for areas such as: incorporation, disclosures and customer protections, product choice and options, risk management and alignment with existing traditional finance rules.
  • The meaning and criteria of ‘best execution’ for clients’ orders was discussed, as well as the relevant and helpful measurement metrics. Most agreed that price is not the only factor in best execution.
  • Participants thought exchanges that issue their own tokens or run other activities such as brokerage and market making, pose the most significant conflicts of interest.

The FCA confirms that it has already made progress in some of the areas discussed at the roundtables and states that they are leading the implementation of international crypto regulatory standards via its leading role in the International Organization of Securities Commissions (IOSCO). 

The FCA is also already working with industry and the Treasury to help shape an industry-led market-abuse information sharing platform.

Cryptoassets consumer research note (wave 5)

The FCA also published a research note, carried out by YouGov on behalf of the FCA, which looks at cryptoasset holdings in the UK and consumers’ understanding, attitudes and behavioural patterns towards them. Areas of particular focus included: public awareness, the role of advertising and marketing, ownership and value, experience of crime, scams or fraud involving cryptoassets and stablecoins. 

Some of the key takeaways include:

• 12% of UK adults hold cryptoassets (up from 10% in 2022); 
• despite the UK cryptoasset market being largely unregulated, 20% of users mistakenly believe they would be compensated if they experience a loss in their cryptoasset holdings;
• consumers are increasingly considering cryptoassets as part of ‘a wider investment portfolio’ and are buying cryptoassets either through their own long-term savings (19% in 2022, 26% in 2024) or through use of a credit card or overdraft (6% in 2022, 14% in 2024); and 
• 27% of cryptoasset users say that they would be more likely to invest in cryptoassets if it was more regulated in the UK. 25% also say that more regulation would make them more likely to invest in cryptoassets, but only if this regulation included some financial protection in the event of losses.

Importantly, it's clear from the study that cryptoassets have gone past the stage of infancy in the context of imbedding into the 'everyday life' of consumers and are here to stay. Accordingly, we anticipate the FCA to ramp up their focus and efforts on cryptoasset regulation (as can be seen in the timeline above) to ensure the regulatory framework adequately supports, provides and monitors firms acting in this space, while protecting impacted consumers.  

Speech on Government’s approach to tokenisation and regulation

In the speech, which was delivered at the Tokenisation Summit on 21 November 2024, Ms. Siddiq outlined the Government's initiatives in the digital asset ecosystem, such as the Digital Securities Sandbox and the broader cryptoasset strategy. These initiatives include exploring UK sovereign debt issuance using DLT and advancing financial market infrastructure sandboxes.

Ms. Siddiq highlighted the transformative potential of distributed ledger technology (DLT) in both cryptoassets and traditional markets through tokenisation and other digital assets. She prioritised supporting the sector to maximise this technology's capabilities, noting progress with the launch of the Digital Securities Sandbox (DSS) and the announcement of a Digital Gilt Instrument (DIGIT) pilot in the DSS.

On the topic of cryptoasset regulation, the speech also provides some important updates on the Government’s plans, including:

• the Government intends to fully implement HM Treasury's October 2023 proposals for regulating cryptoassets; 
• the Government intends to proceed with the new regulated activities for stablecoin, which will be implemented to the same timetable as the rest of the regulatory regime for cryptoassets. Ms Siddiq reiterates that doing everything in a single phase is simpler, and "just makes more sense". Noting, this is technically a delay to the implementation of stablecoin regulation; 
• however, the Government does not intend to bring stablecoin into UK payments regulation at this time to avoid disproportionate regulatory burdens; 
• to clarify the legal status of cryptoasset staking services, Ms. Siddiq helpfully states that it does not make sense for staking services to be treated as a Collective Investment Scheme and as such, confirms that the Government intends to remove this legal uncertainty; and 
• the Government aims to engage firms on draft legal provisions for the cryptoasset regime, including stablecoins, as early as possible in 2025