FCA brings crypto exchanges, dealers, and agents under regulatory oversight
- gareth1669
- Jun 20
- 4 min read
Updated: 15 hours ago
The UK has put in motion a move that will formalise the regulatory treatment of cryptoassets, bringing the sector under a comprehensive legislative framework. Towards the end of April 2025, HM Treasury published an almost-final draft of the Financial Services and Markets Act 2000 (Cryptoassets) Order 2025, showing their intent towards regulation.
A flurry of papers soon followed in May from the FCA, including:
The aim of this legislative package is to bring together exchanges, dealers and agents within the UK regulatory perimeter so that they align their obligations with those in traditional finance. The goal here is always to boost consumer protection and keep the market more stable.
Who and what is in scope?
The scope of the new regime is certainly extensive, and it captures firms that deal both directly and indirectly with UK retail customers, irrespective of the firm's physical presence. The legislation continues to define assets falling under its purview, and this includes "qualifying cryptoassets" and "qualifying stablecoins".
A qualifying cryptoasset is stated to be fungible and transferable in nature, but explicitly excludes instruments already classified as specified investments, such as tokenised securities or e-money. Qualifying stablecoins are a subset of such assets, and their definition extends to those referencing one or more fiat currencies to maintain a stable value.
The range of activities now regulated is growing wider and includes:
The issuance of qualifying stablecoins
The safeguarding and custody of qualifying cryptoassets
The operation of a cryptoasset trading platform
Transacting in qualifying cryptoassets as principal
Arranging deals in these assets.
It’s important to note that the framework extends to making arrangements for such qualifying cryptoasset staking, even liquid staking, and requires firms engaged in these activities to seek authorisation.
The FCA's role and the new authorisation regime
The FCA has been said to be the primary regulator for the cryptoasset sector for a while now, but this set of legislation only solidifies that. It mandates a more stringent authorisation process for all firms that relate to the above activities, and this differs from the previous, lighter-touch regime, which only required firms to register with the FCA for anti-money laundering compliance. With regard to crypto promotions and marketing, this was a separate and narrow intervention that wasn’t part of a more holistic regulation.
The new authorisation will certainly be more rigorous and it will demand that firms prove they meet exacting standards for governance, systems, controls and financial soundness. The regulations include no "grandfathering" provisions for firms currently on the money laundering register, which is an important distinction, meaning that all market participants will need to submit new applications for authorisation (or vary their existing permissions to continue their operations legally).
The FCA has indicated that the application gateway for existing firms will open in 2026, giving firms a defined window to prepare. This transition will require a substantial investment in compliance infrastructure for many firms that have previously operated outside the full scope of FCA supervision.
Key requirements for authorised firms
After receiving authorisation, cryptoasset firms will be subject to the full spectrum of established FCA regulatory standards. This demands some operational and cultural adjustments. A central focus is going to be the Consumer Duty, which requires firms to act in delivering good outcomes for retail clients. Though it sounds subjective, it’s a principle-based requirement that means completing a deep review of product design and customer communications.
The Senior Managers and Certification Regime will be extended to the crypto sector, and this brings with it some direct personal liability for senior individuals. It requires firms to map responsibilities clearly, and this is perhaps one of the most disruptive shocks to the industry.
Prudential soundness is another area. The FCA proposes a new sourcebook, CRYPTOPRU, to set out specific capital and liquidity requirements. Firms will be brought under the purview of the already-existing Conduct of Business rules, so there will now be strict requirements for order handling and conflict of interest management.
Finally, it’s important to note that the temporary financial promotion provisions for MLR-registered firms will soon be removed, subjecting all firms to the standard (and more restrictive) regime. A formal market abuse framework will also be introduced to prohibit insider dealing and market manipulation.
The impact on the UK cryptoasset market
For firms, the regime has a clear increase in compliance costs, bringing more complexity to operations and accountability. It will likely lead to market consolidation and the exit of participants who are unable or unwilling to meet the new standards = or simply not target UK customers, focusing on other nations without such rules.
For consumers and the market at large, the changes are intended to bring a similar set of security that they feel they receive with traditional financial firms. Manipulative IPOs and rug pulls may become harder to pull off, and this could help bring confidence when buying into smaller, newer projects. If that does materialise, we may see the crypto market not only grow but also become more democratised and less concentrated on the major coins. However, some smaller firms may argue against this notion, suggesting it's more costly for them to comply now.
For the UK government and regulators, the hope is that these regulations will bring in more projects due to a mature, secure market, while driving out the less credible projects. In reality, we’re yet to see if this will boost the credibility of new projects, or drive them out of business.
For those looking to survive these changes and remain compliant, Englebert can help train and consult on regulatory matters. As regulation grows, it becomes a tool for competitive advantage.
