UK Cracks Down on Crypto Wild West—Staking and Stablecoins Now in Regulatory Crosshairs
The UK government just fired a warning shot across the bow of decentralized finance. New regulations target crypto’s riskiest playgrounds—staking rewards and stablecoin issuers—forcing them to play by traditional finance rules. Because nothing says ’innovation’ like paperwork, right?
Stablecoin operators now face FSA-style oversight, while staking services must prove they’re not Ponzi schemes in algorithmic clothing. The Treasury claims it’s about consumer protection. Crypto veterans call it a land grab by legacy finance.
One hedge fund manager quipped: ’They’ll regulate crypto into compliance—just in time for banks to monopolize the tech.’ Ouch.
Expansion of regulatory perimeter
According to the draft Financial Services and Markets Act 2000 (Amendment) Order 2025, firms engaging with crypto will require authorization to operate in or serve clients in the UK.
The regulation will introduce a new “qualifying cryptoassets” category and establish clear definitions for “qualifying stablecoins,” distinguishing them from electronic money and tokenized deposits.
These classifications ensure that crypto activities are subject to the same oversight as other specified investments under existing financial services legislation.
The new activities that require authorization include issuing stablecoins, custody, operating trading platforms, dealing in crypto as principal or agent, arranging crypto transactions, and providing staking services.
The policy note clarifies that using stablecoins for payments will not grant them regulation under the Payment Services Regulations, leaving future regulation open as adoption increases.
The geographic scope of the new regulatory perimeter ensures that firms directly or indirectly engaging with UK consumers must obtain authorization, regardless of their location. Additionally, firms providing custody or staking services must also be authorized if they operate in the UK or on behalf of UK consumers.
Stablecoin issuers must obtain authorization only if operating from an establishment within the United Kingdom. The Treasury notes that truly DeFi activities, where no identifiable controlling party exists, would fall outside the authorization requirements.
Implications for financial ads and AML rules
The draft legislation will also revise the Financial Promotion Order 2005. Crypto firms authorized under the new regime will be able to approve their own promotions, eliminating temporary provisions that allowed registered but unauthorized firms to do so.
According to the draft, this aligns the regulatory treatment of crypto promotions with that of traditional financial services.
Further amendments will update the Money Laundering, Terrorist Financing, and Transfer of Funds Regulations 2017.
Authorized crypto firms will no longer need separate registration under anti-money laundering (AML) regulations but must still comply fully with existing AML requirements. Firms must notify the FCA when they begin or cease activities covered by the new regime.
Timeline for implementation
The Financial Conduct Authority will establish an application window before full commencement to allow existing cryptoasset firms to apply for authorization.
Firms that fail to secure authorization within the transition period will enter a two-year wind-down process, during which they can maintain pre-existing contracts but must cease all new business activity involving UK consumers.
The Treasury stated that final legislation will be brought forward “at the earliest opportunity,” with a final Financial Services Growth and Competitiveness Strategy scheduled for publication on July 15.
Discussions with US counterparts on fostering cross-border collaboration on digital securities are also underway as part of broader fintech development initiatives.
