UK Trends and Developments Contributed by: James Burnie, Kathryn Dodds, Nicky Androsov and Olga Antonova, gunnercooke llp
A Brave New World The United Kingdom regulatory regime for crypto- assets is currently undergoing a transformation. To date, the position has been one of fragmented ad hoc regulation of particular activities, starting with a focus on stopping money laundering, and more recently, through the application of restrictions on the promo- tion of crypto-assets, protecting UK consumers from miss-selling of crypto-assets. The result has been a somewhat complicated patchwork of requirements, which has in some respects been confusing as, for example, so-called “unregulated” crypto-assets have actually, over time become highly regulated. With the passing the Financial Services and Mar- kets Act 2000 (Crypto-Assets) Regulations 2026, the decision has been made to do away with the existing patchwork approach. Rather, the legislation heralds a full and comprehensive regulatory regime, intended to be equivalent to that used for traditional regula- tory industry. The timeline for implementation of the new regime is aggressive, as it is intended to take full effect on 25 October 2027. Consequently, the Finan- cial Conduct Authority (FCA) has had to move quickly to develop and publish its approach towards regulat- ing the industry ahead of the deadline, and to try to give firms time to adjust to the requirements of the new regime. At the outset, it is worth noting that blockchain tech- nology is not itself regulated. This is in accordance with the general mantra of “same risk, same outcome” to activities. The blockchain is not an activity – rather it is simply a means of holding information. And, as holding information is not in itself a regulated thing (apart from the general application of legislation such as UK GDPR in relation to personal data, UK MiFIR in relation to transactions data, etc), there is no regulated activity linked to the technology in itself. Rather, certain activities performed in connection with crypto-assets are regulated, in particular where it is considered that they involve an activity akin to a traditionally regulated activity. Relevant activities for these purposes will include issuing a qualifying sta- blecoin; safeguarding of qualifying crypto-assets and relevant specified investments; operating a qualifying crypto-asset trading platform; dealing in qualifying
crypto-assets as principal or agent; arranging deals in qualifying crypto-assets; and staking qualifying crypto-assets. It is worth noting that the regulated activities in each case relate to crypto-assets that are “qualifying”. The definition of this means that, for example, NFTs and soul bound tokens are out of scope – meaning that activities in relation to these tokens may well fall out- The comprehensive nature of the new UK regime means that firms will face a substantial cost in order to comply with it. Historically, the response of Web3 to such a development would be to set up outside the jurisdiction and then sell cross-border into the general UK retail market. Whilst in recent years this would be permitted subject to obtaining approval from a competent FCA authorised firm, under the new regime such marketing will no longer be legal. Instead, firms will be forced to either set up a local UK subsidi- ary and obtain a direct FCA authorisation to service the UK market, or will be forced to sell into the UK based on very narrow exemptions – such as those that allow selling to investment professionals, high net worth companies and sophisticated investors. The narrow nature of these exemptions means that they are not generally useful for crypto-asset firms. Firms should note in any event that to try to rely on them still requires a build, in terms of ensuring that appropriate documentation is provided and obtained to demonstrate compliance. Biting the bullet Those firms, therefore, that seriously intend to service the UK market, will need to set up a local subsidiary that will need to obtain FCA registration. Under the UK rules, the FCA shall assess firms in terms of: operational resilience, principles for business, con- duct of business, senior management/individuals, prudential management, client assets, governance, outsourcing arrangements, financial crime and mar- ket abuse. This builds on the areas which the FCA have previously assessed for firms seeking to become registered with the FCA under the Money Launder- ing, Terrorist Financing and Transfer of Funds Regula- side the scope of regulation. Trying to dodge the bullet
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