UK Government Publishes Draft Law Regulating Crypto Exchanges, Staking, and Custody → Regulation

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Briefing

The UK government, via HM Treasury, published draft secondary legislation → the Cryptoassets Order 2025 → formally extending the Financial Services and Markets Act (FSMA) regulatory perimeter to core crypto-asset activities, including operating a trading platform, dealing, custody, and staking. This action mandates that all firms servicing UK retail customers in these areas must obtain full Financial Conduct Authority (FCA) authorization, shifting the industry from a fragmented Anti-Money Laundering (AML) and Financial Promotion-only regime to a comprehensive financial services framework. The government intends to finalize the legislation by the end of 2025, setting a firm timeline for compliance system overhaul.

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Context

Prior to this Order, the UK’s regulatory approach to most crypto-assets was fragmented, relying primarily on AML rules and specific Financial Promotion restrictions, leaving a significant gap in oversight for market conduct, capital adequacy, and operational resilience. The Financial Services and Markets Act 2023 provided the statutory power to regulate, but the industry lacked clarity on the specific scope of regulated activities, creating legal uncertainty for firms regarding which services required full authorization and which could operate under a lighter-touch regime.

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Analysis

This legislation fundamentally alters the compliance architecture for all in-scope firms, requiring a full transition to the FCA’s conduct, capital, and governance standards. The inclusion of “operating a qualifying cryptoasset trading platform” and “qualifying cryptoassets staking” necessitates the immediate development of new internal controls, risk mitigation frameworks, and capital buffers akin to those in traditional finance. Furthermore, the explicit amendment of territorial application ensures that overseas firms servicing UK retail clients must also be authorized, effectively eliminating the regulatory arbitrage previously exploited by offshore entities. This is a critical update that dictates a complete re-architecture of operational compliance systems for market entry and continued operation.

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Parameters

Regulating Body → HM Treasury and Financial Conduct Authority (FCA)
Legislation Name → Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025
Phase 2 Activities Covered → Operating a trading platform, dealing, custody, and staking
Compliance Target Date → Legislation intended to be laid by end of 2025

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Outlook

The next phase involves parliamentary approval and subsequent detailed rulemaking by the FCA on capital requirements, client asset protection, and operational resilience standards. This comprehensive, activities-based framework sets a global precedent for integrating digital assets into existing financial law, potentially influencing other jurisdictions as they seek to move beyond an enforcement-only approach. While litigation challenging the scope, particularly around the definition of “staking” and the territorial reach, is a high probability, the legal framework’s direction is now clear, enabling firms to plan for long-term regulatory compliance.

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Verdict

The UK’s formal integration of core crypto activities into its primary financial services law establishes a clear, durable compliance mandate and signals the end of regulatory ambiguity in a major global jurisdiction.

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