The UK’s draft crypto legislation released today focuses on regulating local crypto activities while allowing foreign stablecoin issuers to operate without UK regulation. This approach is designed to balance consumer protection and innovation in the crypto sector. The regulations detail seven key crypto activities needing UK oversight. Feedback on the draft will be collected until May 2025.
Today, the UK’s HM Treasury unveiled its draft legislation related to cryptocurrencies, with a focus on regulating entities that directly engage with UK consumers on crypto-assets. The approach seems to be finding a middle ground—protecting consumers while still luring in crypto activities. Interestingly, foreign stablecoin issuers are excluded from the need for UK regulation, even if UK residents use their stablecoins, which sets the UK apart from some other regulatory environments.
Chancellor of the Exchequer, Rachel Reeves, noted the UK’s collaboration with the United States on fostering digital asset growth. During a recent trip to the U.S., she met with Treasury Secretary Bessent to discuss this initiative. Furthermore, the UK is considering the adoption of SEC Commissioner Peirce’s proposal about a transatlantic collaboration for its Digital Securities Sandbox, aiming to intertwine the regulatory landscapes. Reeves said that “robust rules around crypto will boost investor confidence,” which is a sentiment pushing for the growth of Fintech while protecting consumers.
However, it’s worth mentioning that these draft regulations are somewhat preliminary. Detailed rulemaking will fall under the purview of the Financial Conduct Authority (FCA). Notably, the government previously decided against modifying payment regulations for stablecoins, reasoning that it would be overly burdensome at this stage of innovation. But hey, stablecoins can still be used for payments. The draft regulations outline seven main crypto activities, including the operation of trading platforms, lending and borrowing, and custody services.
Essentially, any cryptocurrency exchange or dealer servicing UK residents needs to be regulated within the UK. This includes those involved in crypto lending and borrowing. Interestingly, some foreign crypto entities may not be required to adhere to these regulations if their interactions with UK consumers are indirect—say, through a regulated platform. Similarly, entities engaging only with institutions that aren’t intermediaries to consumers also fall outside the regulatory requirement.
On the regulatory side, crypto custodians must be under UK jurisdiction, which also applies to the custody of tokenized securities. While typically, digital securities align with conventional securities regulations, there’s an intention to address the unique technical requirements common in the crypto realm. Notably, the draft regulations introduce staking as a new activity, an area largely unregulated in many jurisdictions until now.
Lastly, truly decentralized finance (DeFi) activities aren’t covered by these regulations—but there’s a stipulation here regarding the presence of a “sufficiently controlling party.” This adds a bit of complexity to the landscape. HM Treasury is looking to gather feedback on these draft regulations by May 23, 2025.
