UK crypto regulation is entering a new phase, with formal legal frameworks continuing to develop. Crypto assets remain high-risk, speculative investments, and regulators around the world continue to adopt vastly different approaches, ranging from outright bans to minimal oversight. The UK, however, is now moving towards a more structured regime, with new regulatory powers under the Financial Services and Markets Act 2023 shifting crypto-related services firmly within the scope of financial regulation.
If your business is involved in digital assets, token issuance, exchanges or related services, it’s essential to stay ahead of these developments. With the grey area around UK crypto regulation rapidly disappearing, firms must understand their obligations or risk falling foul of the law. Our experienced financial services solicitors can help you assess your exposure, navigate authorisation requirements and stay compliant in a fast-evolving regulatory landscape.
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What are crypto assets?
Crypto assets (which include crypto currencies, crypto coins and virtual currencies) are still risky, especially for retail customers. Their volatility, technological complexity, and potential for fraud or operational failure have led regulators to treat them with increasing caution.
Globally, regulatory responses have varied widely. These responses range from outright bans (as in China) to the acceptance of certain crypto currencies as legal tender (as in El Salvador).
There is no single international definition of a crypto asset. However, in the UK, two key definitions apply:
- Under the Money Laundering Regulations 2017 (the 'MLRs'), a crypto asset is defined as “a cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology ('DLT') (e.g. a blockchain) and can be transferred, stored or traded electronically”.
- Under the Financial Services and Markets Act 2023 (‘FSMA 2023’), the government may define and regulate crypto assets more flexibly via secondary legislation, giving regulators the power to respond to new asset types and risks as they emerge.
UK regulators commonly group crypto assets into the following categories:
- Exchange tokens (e.g. Bitcoin) - used as a means of exchange but not issued or backed by a central authority
- Utility tokens - provide access to a product or service, often within a closed ecosystem
- Security tokens - represent ownership or rights similar to traditional investments and may fall within the regulated perimeter
- E-money tokens - meet the definition of e-money and are regulated under the Electronic Money Regulations 2011 (‘EMRs’)
These categories help determine which crypto assets are regulated, and how. Firms dealing with any of these assets should consider whether their activities fall within the scope of existing or forthcoming regulation.
UK approach to regulation
The UK’s approach to the regulation of crypto assets has moved beyond the ‘light touch’ era. While early oversight focused primarily on anti-money laundering (AML) compliance, regulation has expanded significantly in recent years, particularly following FSMA 2023, which gave the government and regulators broad powers to bring crypto assets within the scope of UK financial regulation.
The key regulatory considerations in the UK are not dissimilar to those globally:
(i) anti-money laundering requirements;
(ii) oversight and regulation by the financial regulator;
(iii) appropriate disclosure / advertising standards to protect consumers; and
(iv) environmental, social and governance ('ESG') considerations are increasingly becoming significant given the significant resources (computing and energy) involved in mining.
Issuing or creating crypto assets
Issuing or creating crypto assets in the UK is currently unregulated unless the asset in question qualifies as a security token or e-money token.
Security tokens, which confer rights similar to shares, debt instruments or units in a collective investment scheme, fall within the scope of the Financial Services and Markets Act 2000 (FSMA) and the Regulated Activities Order (RAO). Issuing these without the correct FCA permissions may constitute a criminal offence.
E-money tokens, which meet the definition of electronic money under the EMRs, require the issuer to be authorised or registered with the FCA.
Other tokens, including most utility and exchange tokens, currently fall outside regulation in the UK. However, this is expected to change. FSMA 2023 gives HM Treasury powers to bring a broader range of crypto asset activities into regulation via secondary legislation.
Initial Coin Offerings (ICOs) are also under scrutiny. While many ICOs currently involve unregulated tokens (typically utility tokens), future rules may bring token issuances and crypto-based fundraising mechanisms into scope, especially where they function as alternatives to traditional capital raising.
Operating a crypto business (wallets, exchanges, custodians)
Operating a crypto asset business in the UK may trigger regulatory obligations depending on the nature of the activity.
Under the MLRs all crypto asset exchange providers and custodian wallet providers need to register with the FCA for AML supervision. This includes businesses involved in exchanging crypto assets for money or other crypto assets, or those that safeguard private cryptographic keys.
Beyond AML, firms may also be carrying on regulated activities under FSMA and RAO. For example, custodial wallet providers may require Part 4A FSMA authorisation if they are deemed to be safeguarding and administering investments. Businesses should carefully assess whether any of their services involve specified investments or activities.
In some cases, the EMRs or Payment Services Regulations 2017 may apply, particularly if the crypto asset works similarly to e-money or payment instruments.
Offering investment-like services
If a crypto asset qualifies as a security token (i.e. it confers rights similar to shares, debt instruments, or units in a collective investment scheme), then various investment-like services involving that token may constitute regulated activities under FSMA and the RAO.
Activities that may be caught include:
- Giving investment advice on security tokens
- Arranging deals in relation to security tokens
- Managing crypto portfolios that include security tokens
- Making arrangements with a view to transactions in these assets (can include making introductions to providers of such products)
Where this is the case, firms need to obtain Part 4A permission from the FCA to lawfully carry on these activities, as carrying out regulated activities without authorisation is a criminal offence.
It’s important to assess each token on a case-by-case basis. Most exchange or utility tokens are not classed as specified investments, so these rules wouldn’t apply, but if the token has features of traditional financial instruments (e.g. profit rights, redemption rights, or ownership stakes), it may fall within regulation.
Where there’s any doubt, firms should seek legal advice or consult the FCA’s Perimeter Guidance Manual.
Financial promotions
From 8 October 2023, financial promotions for qualifying crypto assets became subject to section 21 of FSMA following amendments made by FSMA 2023.
Now, a crypto asset promotion is only lawful if:
- It’s made by an FCA-authorised firm
- It’s approved by an FCA-authorised firm
- It’s made by a firm registered with the FCA under the MLRs using the exemption in FSMA (Financial Promotion) Order 2005 Article 73ZA (the “s36D gateway”), or
- It falls within an exemption under the Financial Promotion Order.
The rules apply to “qualifying crypto assets” which are, broadly, fungible, transferable crypto assets that are not e-money or already regulated tokens. The regime imposes content requirements, including prominent risk warnings and a ban on incentives to invest (e.g. referral schemes or “limited time offers”). Firms therefore need to ensure that communications are fair, clear, and not misleading.
This regime sits alongside the Advertising Standards Authority’s (ASA) existing remit over crypto advertising. Breaches of section 21 FSMA are a criminal offence, carrying up to two years’ imprisonment, an unlimited fine, or both.
What protections exist for consumers?
Retail consumers currently have few safeguards in place when dealing with crypto assets under UK law. Most crypto assets (e.g. exchange or utility tokens) are not classified as “specified investments” under the RAO. As a result, services involving these assets typically fall outside the scope of the Financial Services Compensation Scheme (FSCS) and the Financial Ombudsman Service (FOS). This means consumers have no access to compensation or dispute resolution if, for example, a provider becomes insolvent or suffers a security breach.
Crypto assets are also inherently volatile and present unique risks, including:
- Significant price fluctuations
- Loss or theft of private keys
- Irreversible transaction errors
- Permanent loss of access due to forgotten private keys, passwords or misplaced storage devices
To mitigate these risks, the UK regime puts strong emphasis on consumer warnings and disclosure obligations. Under the financial promotion rules, firms must include standardised risk warnings and ensure communications are clear, fair and not misleading.
The FCA, ASA and HM Treasury have all raised concerns about misleading advertising and lack of consumer understanding. Regulatory protections are expected to increase as more crypto asset activities come within scope, but for now, the onus is on clear disclosures and consumer awareness.
What’s coming next
In April 2025, HM Treasury published a draft statutory instrument setting out how it plans to regulate crypto asset activities in more detail.
Here’s what’s on the horizon:
- New regulated activities: The draft rules would bring activities like running a crypto exchange or issuing stablecoins within regulation, with firms carrying out these activities needing to be authorised by the FCA.
- Market abuse and transparency: There are also plans to introduce new rules on market abuse and disclosures for crypto asset trading, similar to what already applies to listed securities.
The government expects these new rules to be in place by 2026, with applications for authorisation expected to open in late 2025. It is intended that the FCA and Bank of England will oversee different parts of the framework depending on the type of asset and activity involved.
What your business should do next
The pace of regulatory change means businesses working with crypto assets must stay alert to future developments. With a new regime expected by 2026 and draft rules already published, now is the time to evaluate your services, clarify whether FCA authorisation is required, and get ahead of potential market conduct rules. If your crypto asset activities fall within scope, or might soon, working with experienced financial services solicitors can make all the difference. We help businesses navigate complex regulations, prepare for authorisation, and manage legal risk as the regulatory perimeter expands.
