UK’s emerging cryptoasset regulations: trading, custody, issuance, and promotions in focus (Part 1) | The Paypers
As the UK develops its cryptoasset regulations, Charles Kerrigan from CMS explores the policies shaping the markets.
In a three-part series, he discusses upcoming rules, their effects on financial institutions, and how applying traditional financial rules to crypto will influence products and markets.

Introduction

The UK’s crypto regulatory path is being laid out. In early 2023, HM Treasury launched a consultation on a new crypto regulatory framework. By mid-2023, Parliament gave regulators new powers (via the Financial Services and Markets Act 2023) and extended financial promotions rules to cover cryptoassets. After gathering industry feedback, the government published detailed proposals in late 2023 and confirmed in late 2024 that it will proceed largely as planned, with the exception that there would no longer be a ’phased approach’. Draft legislation was released in April 2025, and the FCA has completed various consultations on the finer rules, with further consultations planned. The full regime is expected to go live in late 2026.

UK’s proposed crypto framework: an overview

Rather than adopting a separate rulebook for crypto, the UK is integrating cryptoassets into its existing financial regulatory framework. Under the draft legislation – the Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025 – ’qualifying cryptoassets’ will be added as a new category of regulated instruments. This term is defined broadly to cover any cryptographically secured digital representation of value or rights that is fungible and transferable, using a distributed ledger or similar technology. In practice, this means unbacked cryptocurrencies and tokens (such as Bitcoin, Ether, or new utility tokens) will fall within the scope, except for those already regulated elsewhere (for example, tokenised securities, e-money tokens, or other digital assets already captured under existing rules are carved out). Non-fungible tokens (NFTs) or purely private, untradeable tokens will generally remain outside financial regulation, unless used in regulated activities.

The UK is taking an ’activities-based’ approach. Instead of regulating cryptoassets by type, it will regulate the activities undertaken in relation to cryptoassets – mirroring how traditional financial services are regulated. Many of the proposed regulated crypto activities intentionally echo familiar financial services concepts (sometimes with crypto-specific tweaks). This approach embodies the principle of ’same risk, same regulatory outcome,’ aiming to hold crypto businesses to equivalent standards as traditional firms where the risks are similar. For example, a crypto exchange facilitating trades should uphold transparency and fairness in the same way as a regulated trading venue in securities markets. In November 2024, the new UK government abandoned plans to introduce a ’phased approach’ for crypto legislation. Previously, there were plans for a first phase that would cover fiat-backed stablecoins, especially in payments, while the second phase was expected to extend to broader crypto activities, including exchanges, custody, and more exotic tokens. The government now plans to legislate for stablecoins at the same time as the wider cryptoasset regime. Notably, however, stablecoins will not be brought into the scope of UK payments regulations.

latforms and venues

The UK has been implementing a bespoke regime for regulating cryptoasset platforms and venues since December 2024. The regulations aim to ensure that platforms operating in the UK crypto market adhere to certain standards similar to those in traditional financial markets:

Market integrity: Platforms must maintain a fair and orderly market by implementing transparent trading rules, monitoring for market abuse, and ensuring operational resilience.
Customer protection: Safeguards need to be in place to protect customer assets and funds, reducing the risk of loss due to cyberattacks or insolvency.
Surveillance and reporting: Platforms are required to have surveillance mechanisms in place to detect and report suspicious activities to regulators, contributing to the overall market oversight.

The regulatory framework imposes obligations on crypto trading platforms, including requirements for:

KYC/AML compliance: Platforms must adhere to stringent Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures to mitigate the risks of financial crime and ensure the legitimacy of transactions.
Asset segregation: Customer funds and assets must be kept separate from the platform’s operational funds, reducing the potential impact of insolvency on customer holdings.
Capital requirements: Platforms may be subject to capital adequacy requirements to ensure they have sufficient funds to operate effectively and cover potential liabilities.

The regulatory oversight of crypto trading platforms and venues reflects a broader trend towards enhancing the supervision of the crypto market to address risks related to investor protection, financial stability, and market integrity.

Regulating Crypto Trading Platforms

One of the centrepieces of the UK’s plan is imposing regulatory standards on crypto trading venues. In the future, any crypto exchange facilitating trades must be authorised and will be subject to obligations mirroring those of traditional trading venues (like stock exchanges or MTFs).

Authorisation & location: Platforms operating in the UK or serving UK users will need to be authorised by the FCA as a Cryptoasset Trading Platform (CATP). The FCA has indicated it wants these platforms to have a substantial presence in the UK – likely meaning UK incorporation or a local subsidiary for major retail-facing exchanges. Doing business ’in or to’ the UK triggers the licence requirement, so even an overseas exchange advertising or onboarding UK customers falls in scope. The overseas persons exemption (which currently allows foreign securities exchanges to deal with UK professional clients without a UK licence) will largely not apply to retail crypto dealings. However, solely dealing through a UK-authorised firm (e.g., an overseas exchange that only takes trades via a UK broker) might avoid direct licensing, and institutional-only business may retain some exemptions.

Rulebook for exchanges: Once authorised, crypto trading venues will be expected to comply with a comprehensive set of rules to ensure market integrity, consumer protection, and operational resilience, akin to the rules for regulated financial markets. According to the FCA’s crypto roadmap, key areas for trading platform rules include:

Access and onboarding: defining who can use the platform (retail vs. institutional clients) and ensuring proper onboarding (KYC, suitability checks, etc.). Retail access may be coupled with appropriateness tests, given the high-risk nature of crypto.
Systems and controls: platforms must have robust technology and controls to handle trading volume safely. Expectations around cybersecurity, outage handling, and incident reporting will be high (cyber resilience is a top concern given past hacks in crypto markets).
Fair trading and market integrity: requirements to prevent manipulative trading and ensure fair pricing. This means surveillance systems to detect market abuse (wash trading, spoofing, insider dealing on crypto, etc.), as well as rules against improper conduct by the venue or its participants. HM Treasury has confirmed a Market Abuse Regulation (MAR) regime for cryptoassets will be introduced, extending the principles of the existing UK MAR to crypto trading. Trading venues will need to implement measures to detect and report suspicious transactions and cooperate with regulators on enforcement.
Transparency and reporting: there will likely be requirements for pre-trade and post-trade transparency, meaning publishing quotes or price information and reporting trade data, to the extent appropriate for crypto. The FCA is considering how far to import MiFID-style transparency rules (which may be challenging in fragmented crypto markets). Platforms will also be required to report transaction data to regulators and perhaps to users for tax and record-keeping purposes.
Conflicts of interest and segregation: many crypto exchanges today perform multiple roles (exchange, broker, market maker, custodian, etc.). Regulators have flagged the need for robust conflicts of interest policies. They may require functional separation – for example, an exchange’s own proprietary trading desk should be segregated from its client order book, to prevent abuse. In the future, regulators might even demand structural separation if a single group provides multiple crypto services (akin to how large banks separate their research, trading, and advisory arms).
Consumer protection rules: exchanges serving retail will likely be subject to client asset safeguards, disclosure of risks to customers, fair terms of business, and even the new Consumer Duty standards the FCA is rolling out across finance. They will also need procedures for handling customer complaints and redress. Advertising by exchanges must comply with financial promotion rules (see further below). Additionally, operational resilience requirements include having disaster recovery plans, incident response, and minimal downtime – outages at major crypto exchanges have drawn regulatory ire in the past.

Overall, expect UK-authorised crypto exchanges to start resembling regulated trading venues, both in terms of oversight and in internal governance. This represents a significant uplift from the current position, where UK crypto exchanges only register for anti-money laundering (AML) supervision. Many will welcome the clarity and the ’badge of credibility’ authorisation brings, but the compliance costs will rise accordingly.

In the next installment, Part 2, we will explore the UK’s new rules for crypto custody, which require FCA authorisation and stricter safeguards to protect client assets.