Treasury confirms next steps in crypto regulation

Treasury has published its response to its consultation and call for evidence on the future regulatory regime for crypto assets. Broadly, it will proceed with the proposals it consulted on, and will:

  • develop a regulatory framework for certain activities related to crypto assets within the RAO, by including crypto assets within the list of “specified investments” in the RAO, but not expanding the definition of “financial instrument” to include crypto (except that some crypto is already covered by the definition and will stay within it);
  • use the new Designated Activities Regime to designate certain crypto activities that are not within the scope of regulated activities;
  • clearly set out definitions and the parameters of regulation in secondary legislation and regulatory requirements;
  • create the right conditions for both private and public blockchains to allow relevant activities to be carried out subject to appropriate requirements being met;
  • require firms already registered with FCA for MLR compliance to complete a full authorisation application for their permissions, and will not put in place any form of grandfathering;
  • cover activities taking place both in and into the UK. The Government does not plan to extend the overseas persons exclusion because it wants to catch all firms dealing with UK retail customers;
  • regulate vertically integrated business models in respect of each relevant activity – but will not endorse specific models, although FCA may decide that some conflicts are impossible to manage; and
  • not, in principle, regulate NFTs provided these are more akin to collectibles and do not have other features that would bring them within scope;
  • not currently regulate advice relating to cryptoassets, but will keep this under review;
  • not regulate mining as a regulated activity at this stage;
  • consider a new definition of “staking” with a taxonomy of staking business models – and not to ban staking but carefully to consider the regulatory risks it poses and the extent to which these are captured by other regimes.

Respondents raised several points, including:

  • some respondents were concerned that regulating crypto at all would give it a “halo” effect which could be dangerous, or thought crypto activities should be regulated as gambling, while some suggested that crypto assets should just be banned;
  • a desire for more clarity around how the DAR regime will work;
  • whether the overseas persons exclusion should be extended to cover crypto activities in a similar manner to existing investment activities; and
  • that the Government should not be unduly hasty in bringing DeFi activities within the regulatory perimeter. The Government will not be banning DeFi and envisions a future role for fully decentralised DeFi models in financial services in the future – but agrees it would be premature and ineffective to regulate DeFi activities currently.

The Government will proceed with phased implementation, starting with regulation of activities relating to fiat-backed stablecoins used for payment, and then moving onto the broader regime. Phase 2 legislation will be laid some time next year, and the Phase 2 activities will be:

  • issuance activities (admitting a cryptoasset to a cryptoasset trading venue) or making a public offer of a cryptoasset;
  • exchange activities relating to cryptoassets (operating a trading venue supporting exchange of cryptoassets for other cryptoassets, fiat currency or other assets;
  • investment and risk management activities (dealing and arranging);
  • lending, borrowing and leverage activities (operating a cryptoasset lending platform); and
  • safeguarding, administrating and custody activities.


Emma Radmore