This week marked a significant step towards the U.K.’s anticipated crypto regulatory framework as the Financial Conduct Authority (FCA) released its consultation, which will ultimately shape the operations of crypto firms in the country.
Alongside legislation from HM Treasury, these proposals constitute the foundation of a framework that is set to be implemented in October 2027. The goal for policymakers is to harmonize growth and innovation with market integrity and consumer safety. Meanwhile, the industry faces the challenge of managing an 18-month transition during which the end goal is clearer than ever — yet remains some distance away.
“This is a pivotal moment for the U.K.,” stated Dea Markova, director of policy at Fireblocks, a crypto infrastructure firm. “This represents the concrete framework for the regulation of crypto asset issuance and intermediation.”
From discussion to definition
The current consultations should be seen as part of a prolonged, meticulously structured journey, as noted by Sébastien Ferrière, a financial regulation attorney at Pinsent Masons.
For over a year, the U.K. has been developing a regulatory roadmap that enhances the FCA’s authority over crypto. The initial phase has been legislative: Treasury-defined regulated activities delineate what falls within the regulatory perimeter. Only after this can the FCA impose authorization standards and comprehensive regulations.
“In the past year, significant progress has been made,” Ferrière remarked. “We have endured a continuous cycle of consultations, but they are evolving into a coherent regulatory framework.”
Earlier discussions concentrated on stablecoin issuance and custody, prudential standards like capital and winding down strategies, and the extension of existing FCA mandates — governance, systems and controls, and operational resilience — to crypto firms. This week’s consultations focus directly on markets: trading platforms, intermediaries, staking, decentralized finance, admissions and disclosures, and market abuse regulations unique to crypto.
Overall, Ferrière indicated, the FCA is striving to adapt the structure of traditional financial regulation to crypto markets while modifying it to account for the unique risks presented by the technology.
A hybrid regulatory model
A crucial design decision is the U.K.’s choice to apply existing financial services rules to crypto instead of creating a brand-new regulation framework, as the European Union (EU) has done with its Markets in Crypto-Assets (MiCA) regulation.
This distinction carries weight, but not in an overly simplistic manner. Ferrière described the FCA’s approach as hybrid. Core obligations — principles of integrity, conflict management, and fair customer treatment — are largely maintained. However, market-specific rules are being crafted specifically for the crypto landscape.
“There is a new regime for admissions and disclosures and a fresh framework for market abuse,” Ferrière explained. “They are not merely transplanting securities rules and applying them mechanically. They mirror the existing structure but are specifically tailored to reflect the nature of crypto assets and services.”
The regulator is, he emphasized, treading a fine line. A more permissive stance than traditional markets risks allegations of preferential treatment for crypto. Conversely, a stricter approach could drive activities offshore. The stated aim is “same risks, same outcomes,” even if the implementation varies.
Second-mover advantage and its limits
Markova believes that the U.K.’s key asset is its timing. By observing the EU’s developments and engaging in ongoing discussions in the U.S., Britain can learn how regulatory choices manifest in real-world scenarios.
“The U.K. is actively drawing lessons from other markets,” she noted. “This is evident in both the proposals and the political discourse.”
This narrative is crucial, Markova contended, as many decisions facing banks and asset managers looking to integrate crypto services are ultimately risk assessments made within legal gray areas. A favorable policy environment fosters distinct outcomes compared to one dominated by the fear of enforcement.
She also highlighted several ways the U.K. has diverged from EU norms, including explicit guidance on staking, lending, and borrowing, and a pragmatic acknowledgment that crypto liquidity is inherently global rather than confined to national markets.
The unresolved pressure points
Despite the advancements, significant uncertainties linger — particularly concerning stablecoins and DeFi.
On stablecoins, Markova remarked that policymakers recognize the necessity to differentiate between payments and investments, steering clear of the pitfalls of regulating merchants merely for accepting digital currencies. However, crucial questions remain unresolved: how foreign-issued stablecoins will be treated in comparison to sterling-denominated ones, what due diligence requirements will be imposed on platforms, and how a conservative settlement policy might impact adoption.
DeFi presents an even tougher conceptual dilemma. The FCA has indicated that sufficiently centralized activities will be governed like traditional intermediation. However, many DeFi offerings are inherently non-custodial.
“Identifying a responsible entity and imposing a custodial framework does not always tackle the underlying risks,” Markova remarked. “Hence, DeFi regulation remains unsolved anywhere.”
Proportionality and global reach
David Heffron, also a financial regulation lawyer at Pinsent Masons, framed the overarching consideration as proportionality. The FCA asserts its desire for a competitive, innovative market, yet the cumulative weight of conduct rules, operational resilience standards, and capital requirements will influence how attractive the U.K. remains to global firms.
“It’s premature to make a definitive statement,” Heffron acknowledged. “However, this is a significant market, and I would be surprised if international operators did not seek access to U.K. liquidity.”
Ferrière accentuated another concern likely to assume greater significance: extraterritorial reach. Defining what constitutes “operating in the U.K.” is already challenging in traditional finance. In the crypto context — fundamentally global and digital — firms may find themselves within the regulatory ambit sooner than anticipated, compelling decisions related to geo-blocking, restructuring, or establishing a U.K. entity.
What success would look like
From the FCA’s standpoint, success would equate to more informed investors, diminished market abuse, heightened confidence, and sustainable competition. New admissions and disclosures regulations aim to standardize information about crypto assets, while market abuse provisions seek to mitigate manipulation and informational asymmetries — both essential for deeper institutional involvement.
The trade-off is compliance, as the regime is not designed to eliminate risk. Instead, it aims to ensure that participants engage with crypto markets armed with clearer information and enhanced safeguards.
Currently, the U.K. has crossed a vital milestone: transitioning from endless discussions of “frameworks” to a definitive regulatory future state. Whether its strategy as a second mover results in a competitive advantage or merely prolongs uncertainty will reveal itself as firms decide whether to invest in the U.K.’s crypto landscape ahead of 2027.
