UK tables long-awaited digital asset bill to parliament

The United Kingdom government has laid final legislation before parliament to provide a regulatory regime for digital assets, set to come into force in 2027. It gives the country’s top finance sector watchdog, the Financial Conduct Authority (FCA), the necessary powers to oversee the space and integrate digital assets into the country’s financial regulation. In response, the FCA launched a consultation on its proposed approach, promising to take into account the “unique aspects of cryptoassets.”

• UK sets FCA oversight for cryptoassets
• Crypto regulation endures U.K. political shift
• Clarity arrives for digital asset firms
• FCA advances rulebook for crypto firms

On Monday, HM Treasury laid the final draft of a ‘statutory instrument’ before parliament that will create new regulated activities for ‘cryptoassets’ and place the sector within the FCA’s jurisdictional oversight, allowing the regulator to finally bring digital assets within the U.K.’s financial regulatory regime.

“Bringing crypto into the regulatory perimeter is a crucial step in securing the U.K.’s position as a world leading financial centre in the digital age,” Chancellor of the Exchequer Rachel Reeves MP said. “By giving firms clear rules of the road, we are providing the certainty they need to invest, innovate and create high skilled jobs here in the UK, while giving millions strong consumer protections, and locking dodgy actors out of the U.K. market.”

The digital asset sector remains largely unregulated in the U.K., barring anti-money laundering and countering the financing of terrorism (AML/CFT) rules, and those related to the promotion of financial products.

However, according to the Treasury’s December 15 announcement, the legislation presented to parliament will provide “firm and proportionate rules” that will come into force from 2027, “giving firms legal clarity over the sector’s regulatory position and boosting consumer confidence by ensuring consumers are robustly protected.”

The major change will be that digital asset firms will need to be regulated by the FCA in the same way as other providers of financial products, including being subject to the established transparency standards and licensing regime.

“Cryptoassets firms will be backed to innovate and grow under plans to make the UK a global destination for digital assets and attract more investment,” the Treasury said. “Consumers will be protected by bringing cryptoassets into scope of similar rules to those for other regulated financial products like stocks and shares.”

Meanwhile, Economic Secretary to the Treasury, Lucy Rigby KC MP, placed the emphasis very much on supporting the digital asset sector, saying that “by establishing a comprehensive regulatory regime for cryptoassets, the government is taking another step towards delivering on its ambition for the UK to be a world-leading hub for digital finance.”

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Slow road to regulation

In October 2023, HM Treasury, under the previous Conservative government of Rishi Sunak, published detailed proposals for creating a U.K. financial services regulatory regime for cryptoassets, including stablecoins. Essentially, it involved a mix of integrating cryptoassets into existing financial regulation with certain bespoke new rules.

When 14 years of Conservative rule came to an end in July of last year, a certain amount of uncertainty crept back in as industry and observers awaited what the new Labour government would do. However, in November of last year, the Treasury confirmed that it will proceed with introducing the regime broadly in line with the previously published proposals.

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An end to uncertainty

The long-awaited progress toward substantive regulation for digital assets in the U.K. received a warm response from some working in the area, who have been living in a state of limbo and uncertainty for some time.

Hannah Meakin, partner at global law firm Norton Rose Fulbright, told CoinGeek that the legislation represents “the corner piece of the jigsaw because it provides key definitions and explains how cryptoassets will be able to be offered to the public and listed, what types of abusive behaviour will be prohibited and which activities will require authorisation.”

With the legislation now in place and set to come into force in 2027, the next stage of the process will involve the FCA, whose job it will be to regulate the digital asset space, firming up how it proposes to slot the new asset class into the existing regulation framework.

“The FCA will be able to develop the rules and guidance it has proposed, and industry will be able to provide more informed feedback to help make the final regime as effective as possible,” said Meakin. “There are already some key provisions, such as for information sharing between authorised persons to combat market abuse and the prospect of a list of legitimate market practices as carve-outs to the offences.”

She added that “We will see more tailoring to the particular characteristics of cryptoassets at the next level, where the FCA has significant power to design the detailed rules.”

With this in mind, following the Treasury’s introduction of the final legislation to parliament on Monday, the FCA launched a consultation on its proposed approach to digital asset regulation.

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FCA consultation

On Tuesday, hot on the heels of the Treasury’s announcement, the FCA published a consultation on its proposed rules and guidance for firms conducting regulated cryptoasset activities, such as trading platforms, intermediaries (including cryptoasset lending and borrowing), staking and decentralized finance (DeFi).

“Under the government’s plans, our regulatory remit for cryptoassets will expand from the current Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) and financial promotions regime to a more comprehensive crypto regime,” said the regulator. “Our proposed rules and guidance are aimed at effectively promoting market integrity, protecting consumers, and supporting innovation and competition in the UK cryptoasset sector.”

Likely much to the relief of digital asset-market participants, the FCA also confirmed its consultation would take into account “the unique aspects of cryptoassets” when deciding their place in the future regulatory regime.

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