UK Crypto Regulation: Key Changes and What to Expect in 2025

The UK government has repeatedly expressed its ambition to establish the country as a crypto hub. However, 2024 saw limited progress in regulatory developments, and with ongoing political shifts, the crypto industry has been left speculating about the next steps. Despite the uncertainty, there have been notable remarks that may provide hints about the future regulatory roadmap. While clarity is still lacking, and it remains to be seen how these plans will translate into concrete actions, this article explores the potential changes on the horizon.

UK Crypto Regulatory Landscape: 2024

Unlike China, which has imposed strict restrictions on crypto assets, or Costa Rica, which has adopted a cautious wait-and-see approach, the UK has chosen to introduce regulatory measures for crypto assets. This puts the UK in line with major economies such as the US, EU, and Singapore, which are also working to create structured regulatory frameworks for the crypto industry. The UK has opted for a phased regulatory strategy for crypto assets, focusing on gradual implementation to prioritize key areas first. Instead of designing a bespoke regulatory framework specifically for crypto assets, the UK is retrofitting existing regulations, to accommodate crypto assets and crypto businesses.

So far, the UK has amended the Money Laundering Regulations to include crypto businesses and updated the Financial Promotions Order to encompass qualifying crypto assets. To complement the UK's AML regime, the Travel Rule for crypto assets was implemented in 2023. In addition, the UK Government acknowledged the need for a robust legal framework to enable law enforcement agencies to confiscate crypto assets linked to criminal activities and prevent their use in financing further crime or terrorism. This led to updates in the Economic Crime and Corporate Transparency Act. The government has also explored the concept of a Digital Pound, conducting public consultations on the topic, and progressed toward establishing a Digital Securities Sandbox for certain businesses. Furthermore, advancements were made in civil law, with a draft bill proposing statutory recognition of a third category of personal property to include digital assets such as crypto tokens.

However, beyond the AML and FPO regimes, there has been little progress toward developing a more comprehensive regulatory framework that addresses broader risks or introduces additional requirements, such as conduct or prudential standards. The previous government has outlined an initial plan for a broader regulatory regime to be introduced in two phases. Phase 1 focuses on fiat-backed stablecoins, while Phase 2 aims to implement a more comprehensive framework for all crypto assets. These changes were originally expected to take effect in 2024. However, political changes, including a shift in government, have caused significant delays, leaving the crypto industry uncertain about the future direction of UK crypto regulation. 

On November 21, 2024, Tulip Siddiq delivered a significant speech at the 2024 Tokenisation Summit, shedding light on the UK’s regulatory plans for the crypto industry. While we still don’t have full clarity, her remarks hinted that changes could start taking shape as early as 2025.

Shifting from Retrofitted Rules to Comprehensive Crypto Regulation

Based on the remarks, it appears that stablecoin regulation is likely to involve a comprehensive, bespoke framework tailored to address the specific risks posed by the stablecoin ecosystem, including the potential for some assets to become systemic. This represents a notable shift from the earlier intent to rely on existing regimes, such as e-money and payment frameworks, particularly for overseas fiat-backed stablecoin issuers.

This approach marks a significant departure from the UK’s previous strategy of retrofitting existing regulations to accommodate crypto assets and CASPs. It suggests that the government may view traditional financial regulations as inadequate for these assets, recognizing the need for a framework specifically designed for the unique characteristics of stablecoins. While existing regulations will likely continue to coexist and apply where appropriate, this shift signals a growing perception that the traditional regulatory framework alone is insufficient. This approach aligns with that of the EU, where regulators chose to introduce a bespoke framework for Electronic Money Tokens (EMTs) and Asset-Referenced Tokens (ARTs) under MiCAR, deeming the existing EMD framework inadequate despite its potential application. 

However, it remains unclear whether the broader crypto regime in the UK will also adopt a bespoke approach or continue to rely on retrofitting existing frameworks, such as FSMA, RAO, the Prospectus Regime, and CASS, as initially proposed under the previous government’s consultations. It remains uncertain whether the UK will implement strict location requirements for issuers and providers, permit authorization without meeting substantial presence criteria, or allow for regulatory equivalence arrangements.

Transitioning from a Piecemeal Approach to Comprehensive Crypto Regulation

As previously mentioned, the former UK government had proposed a two-phase regulatory approach, initially focusing on stablecoin regulation before expanding to a broader framework for crypto assets. However, based on recent remarks by Tulip Siddiq, it appears that the new government may be shifting away from this phased strategy. Instead, it seems they plan to implement regulations for both areas simultaneously. This marks a significant shift in the UK’s approach to crypto asset regulation, which previously emphasized phased rollouts, extensive stakeholder consultations, and thorough research.

Staking: Excluded from Being Classified as a Collective Investment Scheme 

Consultations held under the previous government indicated that staking would be addressed as part of the regulatory framework. This marked a key difference from the EU's MiCAR, where ESMA has so far only issued Q&A guidance on custodial staking and staking-as-a-service. During the consultation, many respondents emphasized that staking activities should be distinguished from the definition of a Collective Investment Scheme (CIS). Recent remarks by Tulip Siddiq have confirmed that the UK plans to ensure staking will not be classified as a CIS, aligning with these earlier recommendations.

FCA: Crypto Roadmap 2025

On November 26, the FCA released its Crypto Roadmap, outlining projected timelines for discussion papers, consultations, and final policy statements. The roadmap is not comprehensive, and the timelines are subject to adjustments based on parliamentary schedules or further guidance from the government. The plan indicates an aim to finalize the rules by 2026. The roadmap also reinforces previous remarks from Tulip Siddiq, confirming that work will progress simultaneously on both the stablecoin framework and the broader crypto asset regime. Furthermore, the broader regime will be built upon existing regulatory frameworks such as the RAO, COBS, and SMCR.

From CARF to CGT: Changes in UK Crypto Taxation

The Autumn Budget presented by the new government highlights a clear focus on the tax implications of crypto. The UK government has released a summary of responses from the public consultation held earlier in 2024 on implementing the OECD’s Cryptoasset Reporting Framework (CARF) and the updated Common Reporting Standard (CRS).

For crypto holders, much speculation had surrounded changes to Capital Gains Tax (CGT), and the Autumn Budget has now provided clarity. The increased CGT rates represent an in-year adjustment: the lower rate rises from 10% to 18%, and the higher rate from 20% to 24%. These changes take effect immediately, applying to all disposals to prevent asset sales at the previous, lower rates. While the adjustment is less drastic than initially feared, it remains an unwelcome development for many crypto investors.

Digital Gilt: Bridging DLT with Traditional Infrastructure

Interestingly, during her Mansion House speech, the Chancellor announced plans for the government to issue a Digital Gilt Instrument, known as ‘DIGIT.’ This pilot issuance will be conducted within the Digital Securities Sandbox, enabling the government to directly explore the potential benefits of Distributed Ledger Technology (DLT) in the debt issuance process. Additionally, the initiative aims to drive the broader development of DLT platforms and infrastructure across the UK capital markets.

What’s Next for UK Retail Crypto Investors?

In August 2024, YouGov conducted research on behalf of the Financial Conduct Authority, to better understand public awareness, ownership, and motivations surrounding cryptoassets. The study surveyed a nationally representative sample of 2,199 UK adults, with additional focus on individuals who actively engage with cryptoassets. An impressive 93% of UK adults reported being aware of cryptoassets, highlighting their growing prominence in public consciousness. Approximately 12% of UK adults, or an estimated 7 million people, now own cryptoassets, reflecting their integration into mainstream financial behaviors. The findings demonstrate the growing relevance of cryptoassets in the UK.

However, the government has not addressed the needs of retail investors in the UK. In 2021, the Financial Conduct Authority (FCA) banned the sale and promotion of derivatives based on Bitcoin and other cryptocurrencies to retail investors. In 2024, while the FCA updated its position on cryptoasset Exchange Traded Notes (ETNs), it explicitly limited these products to professional investors, such as authorised investment firms and credit institutions operating in financial markets.

This leaves the retail market unaddressed, raising questions about the regulatory approach, especially in light of developments in the US. Many wonder why UK regulators have not considered allowing crypto Exchange Traded Products (cETPs), which are more familiar investment vehicles, and could provide retail customers with the protections associated with regulated brokers.

EU MiCAR and Trump’s Presidency: A Wake-Up Call for the UK?

Many anticipate that the UK will take action, as it currently lags behind other jurisdictions that have implemented comprehensive regulatory frameworks or made strides to foster institutional and retail adoption. With the EU's MiCAR now in effect and political shifts unfolding across the Atlantic, including the potential impact of Trump’s second presidency, the UK may feel pressured to introduce measures that enhance its competitiveness in the global crypto landscape.

Closing Notes

The UK is at a key turning point, dealing with domestic political changes and pressure from global developments like the EU’s MiCAR and shifts in US policy. The big question is whether the new government will stick to the previous plans or take a completely different approach.

What happens next will shape not only the future of the UK’s crypto regulations but also its ability to compete internationally. With 2025 fast approaching, the stakes are high. The government’s actions in the coming months will show whether it can turn its plans into real progress and establish the UK as a global leader in crypto.