CryptoUK Response to Draft Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025 (“the SI”)
CryptoUK (“we”) and its members welcome the opportunity to comment on the Statutory Instrument (“the SI”) regarding the Government’s approach to the new regulatory perimeter relating to cryptoassets to be created under the proposed amendments to the Financial Services and Markets Act 2000 (“Regulated Activities”) Order 2001 (“the RAO”). CryptoUK is the UK’s self-regulatory trade association representing the cryptoasset sector. Our members comprise over 150 of the leading companies across the sector and across the UK. Many of our members are also international and engage with regulators and policies on a global basis.
We have provided detailed responses in the Appendix. We seek to offer pragmatic and relevant observations about, and suggestions in response to, the content within the draft SI. However, at the outset, we would like to make a number of general/ thematic comments about the draft SI and the Government’s broader approach to the future cryptoasset regulatory regime, as follows:
Suggested changes for added clarity
We have drawn attention to several areas where we believe the current phrasing could be improved so as to enhance clarity of the requirements:
- Part 2 – Amendment of the Regulated Activities Order
- 3.—(2) Amendment of the Regulated Activities Order – clarify that order matching is the requisite activity to be deemed a Cryptoasset Trading Platform.
- 9O.—(2)(a)(iii) Safeguarding of qualifying cryptoassets and relevant specified investment cryptoassets – clarify that “right to return” does not scope into “safeguarding” transactions such as lending that are covered elsewhere in the SI.
- 9S.—(2) Safeguarding: general exclusions – clarify the status of an overseas custodian acting on the instruction of an authorised UK safeguarding entity.
- 9Z7. Qualifying cryptoasset staking – clarify that validators are not in scope
- 13.—(5) Relevant application period – clarify the timing intended.
- Part 3 – Amendment of the Act
- 418(6A). – clarify that this is intended to be relevant only when there are UK consumers with or for whom the transaction is being carried out.
General suggestions for future consideration
The following suggestions may be outside the scope of this public consultation, but we would ask the Government to add these to their list of future considerations:
- Consider government guidelines on the composition of stablecoin reserves, along with how and where those should be held. These could be principle-based, rather than setting out prescriptive details at the outset;
- Consider taxation (along with HMRC) and financial reporting with respect to various cryptoasset types and transactions, especially those related to qualifying cryptoassets and qualifying stablecoins, as current rules can be distortive and confusing regarding the actual underlying economics and reporting ramifications;
- Reconsider the decision to delay payments regulation related to the stablecoins payment use case; and
- Reconsider the absence of an “overseas persons exclusion” (similar to Article 72 of the RAO) for wholesale cryptoasset activities, which would benefit from this exclusion to ensure that the UK remains competitive.
We appreciate the immense amount of work invested by all those within the Government to develop and implement regulatory certainty for the cryptoassets sector. We believe the UK can become the global hub it has aspired to become. We do remain concerned, however, along with others we have spoken to in the industry, that the framework as currently laid out may not succeed, in fact, at enabling the full potential of responsible innovation and growth, as well as attracting new business onshore. With that in mind, we would like to suggest additional consultation with the industry prior to finalisation, and to reiterate that CryptoUK and its individual members would be more than happy to meet further to elaborate on or discuss any of our recommendations or concerns.
We thank you for the opportunity to respond to the Statutory Instrument consultation. We also wish to acknowledge the insights from our Working Group and the expert views of member firm, CMS.
Yours sincerely,
CryptoUK and our Members
Appendix
Specific Concerns and Feedback by Part:
Part 2 – Amendment of the Regulated Activities Order
3.—(2) Amendment of the Regulated Activities Order
While we understand that this phrase is consistent with existing regulation, we suggest that the phrase “bringing together” be replaced by “matches” to avoid unnecessary ambiguity and unintentionally including intermediaries not carrying on the activities of a trading platform, such as intermediary brokers.
Based on our reading of the FCA’s Discussion Paper, DP25/1, it seems clear that a retail broker would be considered an intermediary and not a CATP. The notion of actual order matching appears to be a key part of the definition of a CATP. If so, then we believe that this clarity should be brought into the SI.
In lieu of such a change, or even where this language is changed, we would strongly suggest that clear and easy-to-follow guidance and examples are set out in the FCA Handbook, for example in PERG 2, which clearly delineates what activities and service providers should be considered a CATP. We envision this would be a new crypto-specific chapter, so as to avoid conflicts or confusion with existing guidance for traditional finance service providers.
Safeguarding
9O.—(2)(b)(iii) Safeguarding of qualifying cryptoassets and relevant specified investment cryptoassets
We are concerned about the inclusion, within the definition of “safeguarding” of an activity based on a “right against C for the return of a qualifying cryptoasset or relevant specified investment cryptoasset”. We are concerned that this “right of return” creates unintended consequences wherein, for example, a cryptoasset lent to someone else is within the scope of this definition. The Policy Note expressly says that this situation is covered by the dealing activity, so this current drafting appears to be an error.
9S.—(2) Safeguarding: general exclusions
We suggest that this paragraph include this final sentence (or that it be included somewhere in the final draft language) to enhance clarity around the status of an overseas custodian acting on the instruction of an authorised UK safeguarding entity:
“A person (P) carrying out the safeguarding of qualifying cryptoassets and relevant specified investment cryptoassets, where it is at the direction of a person (A) who is authorised to carry on a regulated activity of that kind, should not be considered as carrying on that activity regardless of whether P holds themselves out as engaging in the business of providing that service.”
There may be a conflict between the general exclusion within paragraph 9S.—(2) and the concluding explanatory note, which says: “The exception to the eighth case [NB: this is a typo within the draft SI for tenth] is where a person, authorised to carry on safeguarding activity and located in the United Kingdom, outsources that activity to an overseas custodian; in this case the overseas custodian is not considered to be carrying on relevant activity in the United Kingdom.”
The seeming conflict arises because the wording of the explanatory note (referenced in the legal text as well, Part 3, Article 4) states that the outsourcing by an authorised UK safeguarding party to an overseas custodian means the overseas custodian is always [emphasis added] exempt from carrying on the regulated activity of safeguarding; while paragraph 9S.—(2) separately states that a person P safeguarding on behalf of A is exempt on the condition that [emphasis added] P is not holding themselves out as engaging in the business of etc. This raises the question of which statement takes precedence if a UK safeguarding authorised party, A, outsources to an overseas custodian, P, that is [emphasis added] holding themselves out as engaging in the business of safeguarding.
9Z7. Qualifying cryptoasset staking
We believe it should be more clearly stated that validators themselves are not in scope. This could be added as a direct exclusion within the “Exclusions” section following this paragraph.
Part 3 – Amendment of the Act
418(6A). We suggest the adjustment of the phrase “directly or indirectly”.
While we understand that this is consistent with existing financial services regulation, we believe the use of the term “involved” is broad enough, and that the extra wording, especially use of the word “indirectly”, could create unnecessary due diligence burdens to identify any UK consumer involvement throughout the transaction chain.
Part 6 – Savings and transitional provision – SECTION 1 – Interpretation and relevant application period
13.—(5) Relevant application period
We suggest that wording be changed from “at times outside that period” to “at times following that period” to enhance clarity of the timing intended.
Based on our reading of the draft SI, we believe that the intended meaning of this timing phrase is to allow for new applications at any point after the application window. The proposed new phrasing above ensures that the FCA has published final policy statements, etc before an application window can open and applications can then be reasonably made. In our view, it is otherwise possible to interpret the original phrasing to me that applications are possible prior to the opening of the application window.
Additional General Concerns and Feedback by Topic:
Overseas Person Exclusion
While we acknowledge that this is a deliberately taken position, we remain concerned about the lack of an “overseas persons exclusion” (similar to Article 72 of the RAO) for wholesale cryptoasset activities.
This exclusion currently allows non-UK firms to participate in UK wholesale markets without UK authorisation. Its absence could deter non-UK wholesale participants from engaging with UK cryptoasset platforms and brokers due to regulatory uncertainty arising from the complex common law interpretation of “in the UK.” We believe this omission could hinder the UK’s ambition and the intent of the SI to enable the UK to become a digital asset hub, as the well-understood overseas persons exclusion promotes international wholesale market participation.
Other European jurisdictions with significant market infrastructure have introduced broadly similar measures to enable wholesale market access to their exchanges and other market infrastructure. Absent the inclusion of a version of the overseas persons exclusion to apply with respect to dealing as principal, dealing as agent and arranging activities, non-UK firms falling outside the new section 418(6A) will need to fall back on an analysis of the common law interpretation of whether their activity is considered “in the UK” and therefore within the scope of the general prohibition.
This is a complex area with little case law and significant uncertainty, in part because in other wholesale markets everyone relies on the overseas persons exclusion and so don’t have to think about the obscure common law position. Given the potential consequences of carrying on activities in breach of the general prohibition, especially unenforceability of agreements, there is a risk that wholesale market participants will be put off dealing with UK cryptoasset trading platforms or institutional brokers because of the regulatory risk. Indeed, this would potentially be an important consideration for anyone determining in which jurisdiction to establish wholesale market infrastructure.
By contrast, the overseas persons exclusion is tried and tested and well understood and relatively easy to apply and we consider this should be used as an alternative.
Stablecoins
We are concerned by the intentional decision to delay payments regulation at this stage. As currently drafted, accepting stablecoins as payment for goods and services would arguably itself require authorisation to carry on the activity of “dealing as principal.” We assume that this is not the intention of the SI, and would like to state clearly that this would present a serious obstacle to adoption of payment use cases in the UK, and would not support the stated intention of the SI. .
We further believe the Government should ensure the relevant regulatory body provides at least principle-based guidelines on the composition of the reserves, including how and where they should be held, in order to enable the highest levels of consumer protection.
Tax and Financial Reporting
We know that these topics are outside the scope of the current consultation, but believe that reminders here are important to enable fully aligned thinking and regulation across all parts of the UK economy. Current tax and financial reporting rules for cryptoasset holdings and transactions can be distortive as to the actual underlying economics, and confusing to retail users. This can be particularly salient when discussing the use of foreign currency denominated stablecoins for payments use cases. As one example, each stablecoin payment (for goods, services or other assets) can be deemed a disposal of property, with potentially taxable capital gains (or losses) related to exchange rate movements. If regulation accidentally conveys that stablecoins are simply another form of e-money or payments, then users may be misled. It is therefore essential that the entire regulatory framework, including the parts outside HMT’s immediate remit, must be coordinated across the UK economy.
