With a package of policy statements on the new framework published as of 30 June, and with reference to the legislation and the numerous FCA consultation papers (notably CP25/25, CP25/40, CP25/42, CP26/4 and Guidance Consultation GC26/2), this article will explore the new regime, the impending changes and what firms in the market need to consider in order to prepare.
The Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026 (the “Crypto Regulations”) is the key legislation behind these changes and expands on the existing regulatory framework established by the Financial Services and Markets Act 2000 (“FSMA”) and the Regulated Activities Order (“RAO”). There is a particular emphasis on addressing consumer protection risks, (including misleading promotions and information disparities), the safeguarding and custody of cryptoassets and a new cryptoasset prudential regime.
Perimeter today vs the new regime
Cryptoassets were first ‘developed’ in the late 2000’s in the form of cryptocurrency and have evolved at a significant pace ever since. The FSMA framework was in place well before any cryptoassets had been produced – let alone their trajectory towards becoming part of the mainstream investment market. Currently, the regulation of activities involving these assets has been dependent on whether they fall within the scope of existing UK financial services regulation.
Some cryptoassets fall within the categorisation of a “specified investment” (such as tokenised securities) and those structured as e-money are regulated under Electronic Money and Payment Services Regulations. That being said, the majority of cryptoassets fall outside the existing perimeter and are ‘unregulated’, save for the financial promotion restrictions and AML regulations. This means that firms and customers operating within cryptoasset markets are not afforded the protections of those that fall within the current regulatory perimeter.
The new regime introduces a comprehensive authorisation model, bringing specified cryptoasset activities within the scope of FCA regulation and supervision, alongside a focus on mitigating market abuse and enhancing regulatory oversight. While the framework includes transitional provisions to allow eligible firms to run-off their UK cryptoasset business and exit the UK market in an orderly manner (without breaching s.19 or s.20 of FSMA, as applicable), there is a contractual run-off exemption which is discretionary and subject to FCA control. This reinforces the regulator’s ability to manage the transition to a fully regulated cryptoasset environment.
New 'assets' regulated under the Crypto Regulations
There are three main categories of digital assets captured by this new regulatory framework, these are:
- Qualifying Cryptoassets (see definition below): includes exchange tokens (e.g. Bitcoin) and decentralised finance (DeFi) assets (digital assets built on public blockchains)
- Qualifying Stablecoins (Art.88G RAO): qualifying cryptoassets that aim to maintain a stable value relative to a fiat currency (like GBP or USD)
- Specified Investment Cryptoassets: tokens that fall within both the definition of a cryptoasset and a traditional financial instrument under RAO (such as tokenised securities)
Specifically, the term “Cryptoassets” is defined under s417 of FSMA as:
“any cryptographically secured digital representation of value or contractual rights that
(a) can be transferred, stored or traded electronically, and
(b) that uses technology supporting the recording or storage of data (which may include distributed ledger technology).”
This definition is limited by S.88F of the Crypto Regulations which further defines “qualifying cryptoassets” as those cryptoassets which are fungible, transferable and not solely a record of value or contractual rights. “Fungible” and “transferable” are not themselves defined terms however ‘the market’ seems to be landing on the following:
- Fungible - individual units of an asset or commodity are mutually interchangeable and indistinguishable from each other; and
- Transferable - a change in ownership.
This will likely be one of the main grey areas / points of interpretation.
New activities captured by the Crypto Regulations
The new regime will amend the RAO by introducing a number of new specified activities. Some are an extension of existing specified activities, whereas, others are new standalone activities. The full list is as follows:
- Issuing qualifying stablecoin in the United Kingdom.
- Safeguarding of qualifying cryptoassets and relevant specified investment cryptoassets.
- Arranging for another person to safeguard qualifying cryptoassets or relevant specified investment cryptoassets.
- Operating a qualifying cryptoassets trading platform.
- Dealing in qualifying cryptoassets as principal.
- Dealing in qualifying cryptoassets as agent.
- Arranging (bringing about) deals in qualifying cryptoassets.
- Making arrangements with a view to transactions in qualifying cryptoassets.
- Qualifying cryptoasset staking.
Issuing qualifying stablecoin in the United Kingdom
Issuing qualifying stablecoin will require FCA authorisation when carried on within the UK. The regulated activity can be further sub-categorised into three individual activities, all of which fall within the scope of “Issuing qualifying stablecoin in the United Kingdom”, albeit they will not be regulated on an individual basis.
These are offering the stablecoin; undertaking to redeem the stablecoin; and maintaining the value of the qualifying stablecoin or arranging for another person to do so. Firms should note this is standalone from the existing e-money rules and there is a delineation between qualifying stablecoins and tokenised e-money.
Safeguarding of qualifying cryptoassets and relevant specified investment cryptoassets
The safeguarding of qualifying cryptoassets and relevant specified investment cryptoassets comprises the activity of holding or controlling such assets on behalf of another person, as well as arranging for a third party to do so. A firm will be regarded as safeguarding a cryptoasset where it has control over the asset by any means that enables it to effect a transfer of the asset or its benefits, meaning both custodial and quasi-custodial arrangements fall within the regulatory perimeter. There are limited exclusions (which we have not considered within this article).
A significant component of CP26/4 is the FCA's draft CASS (Client Assets Sourcebook) 17 rules, which set out the requirements relating to the protection of cryptoassets that will apply to firms carrying on either or both of these activities.
Operating a qualifying cryptoassets trading platform
A significant and impactful new regulated activity is “operating a qualifying cryptoassets trading platform” (“CATP”). A CATP is generally defined as a multilateral system that brings together multiple third-party buying and selling interests in qualifying cryptoassets, enabling those interests to interact in a way that results in binding transactions. Notably, the location of the CATP is not a defining factor and the regime will apply to any platform (UK or overseas) that provides services to UK users.
Qualifying cryptoasset staking
The activity of qualifying cryptoasset staking is defined as making arrangements, whether as principal or agent, on behalf of another person for the use of qualifying cryptoassets in blockchain validation processes. Blockchain validation is interpreted broadly (see CP26/13) to include transaction validation on distributed ledger technology networks and the regulated activity focuses not on the validation activity itself, but on intermediated services facilitating participation in that process. The inclusion of staking as a distinct regulated activity reflects the FCA’s concern with the operational, custody and consumer risks inherent in such arrangements, particularly where client assets are pooled, delegated, or otherwise utilised by service providers to support validation activities.
The implementation of cryptoasset specific activities will significantly increase the regulatory perimeter to capture firms that have previously carried out business as unregulated entities. As with current trading arrangements, this will likely throw up usual questions around whether / when back-office providers may be caught within the perimeter (subject to exclusions, exemptions etc).
Specifying cryptoasset staking as a regulated activity demonstrates a willingness by the regulator to bring economically significant digital asset and fintech activities within scope, in line with their increasing prominence across financial markets.
New regime - Market abuse, disclosures and financial promotions
In addition to expanding the scope of specified activities and specified investments, the new regime has introduced a ‘bespoke’ market abuse framework for crypto assets by establishing a series of designated activities under Part 5A of FSMA. These provisions prohibit core forms of market misconduct including: insider dealing, the unlawful disclosure of inside information (see Regulation 18 of the Crypto Regulations) and market manipulation, while also imposing ongoing obligations relating to the public disclosure of inside information. The new framework is closely aligned to the existing UK Market Abuse Regulation, with further information set out in CP25/41.
The interplay between cryptoassets and the associated financial promotions has been brought more in line under the new regulations. The FCA classifies qualifying cryptoassets as “Restricted Mass Market Investments”, permitting marketing to retail consumers only where certain requirements are met, including prominent risk warnings, the prohibition of investment incentives, client categorisation, and appropriateness assessments.
Significantly, and importantly, given the cross-border nature of cryptoassets investing, the regime applies broadly to all firms (whether UK‑based or overseas) whose promotions are capable of having effect in the UK. Applicable communications must be fair, clear and not misleading. In addition, promotions must be communicated or approved by an authorised firm (or fall within an exemption), significantly tightening the regulatory framework.
What firms need to do / consider
The authorisation application window is due to open from 30 September 2026 and, for early movers, we would expect firms to now be clear internally on their intentions in the cryptoasset ‘space’. Firms will want to be progressing consideration of commercial drivers, how this will be operationalised within the current business and the regulatory requirements and associated structure of the proposed offering (e.g. which regulated activities in relation to which qualifying cryptoassets etc). Practically, firms should be considering what will be required to align the internal governance structure, roles and responsibilities and policies and procedures to accommodate the newly regulated services.
Firms that are currently unregulated (MLR-registered) with existing cryptoasset propositions will need to apply for authorisation to be able to conduct regulated activities and should note that this will not be granted automatically. Firms with an existing Part 4A FSMA authorisation that intend to add cryptoasset permissions will need to apply for a variation of their existing permissions profile with the FCA and/or PRA as necessary. Firms should be progressing with the regulated business plan and supporting documents if the intention is to submit an application on or shortly after the 30 September opening.
The key dates for firms considering regulated cryptoasset activities are as follows:
- July 2026 – Pre-Application Support Service (PASS) opens
- 30 September 2026 – Application period opens
- 28 February 2027 – Application period closes
- 25 October 2027 – Expected commencement (unauthorised firms must cease new UK crypto business unless they qualify for the “saving provision”)
- 25 October 2029 – End of transitional provision (two-year transitional provision for late applicants)
The FCA’s approach seems sensible and given the continued growth of cryptoasset investing across the UK and globally, it is certainly the right time for the regulator to provide regulated structure to this market. The impact of these changes will likely not be seen at a macro level until 2027 – 2028, however we would encourage firms to get on top of the proposals early and understand the likely impact on the specific.
How we can help
- Experienced FCA practitioners
- Combined legal and consulting offering
- Significant expertise in retail investments and prudential requirements.
If there are any aspects of the Crypto Regulations that you would like to discuss, please do get in touch.
