Understanding the UK's New Crypto Regulations

By David Rankin (Punter Southall Analytics, Managing Director) and Martin Finnegan (Punter Southall Law, CCO)

For years, crypto markets in the UK have operated in a lightly regulated or even largely unregulated legal environment, but things are about to change.

The UK government and the Financial Conduct Authority (FCA) have this year announced a comprehensive regulatory regime change that will bring the treatment of cryptoassets closer to that of traditional financial products, with the intention of improving consumer protection and market confidence.

Why crypto regulation is changing

Cryptoassets like Bitcoin and Ethereum have grown rapidly in popularity in the 10 – 15 years since their inception, but regulation has struggled to keep up. The FCA itself acknowledged in the launch of a consultation last month that, under the current regime, crypto has been “largely unregulated except for financial promotions and financial crime purposes.”^[1] 

Beyond this, most crypto trading activity sits outside the “regulatory perimeter”, resulting in:

1.  Limited consumer protections
2. No clear authorisation regime for crypto firms
3. Uncertainty about which activities are legally regulated

This gap has become increasingly concerning as the market expands, with high-profile stories highlighting the risks of crypto trading:

• Platform collapses - for example the bankruptcy of FTX in 2022 and subsequent imprisonment of CEO Sam Bankman-Fried

• Scams - like Cryptoqueen’s OneCoin Ponzi scheme which defrauded investors worldwide of over $4bn

• Massive retail trader losses

The new regime

The UK government has introduced a new legal framework under the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026, which is expected to be fully rolled out in 2027, and will:

1.  Bring crypto activities into the regulated financial services perimeter

2. Require firms to obtain FCA authorisation to carry out crypto activities

3. Introduce rules on:

• • Trading platforms

  • Custody (holding crypto for others)

  • Stablecoin issuance

  • Staking and other services

The new regulation aims to treats crypto more like traditional financial products.

Stablecoins

A key area of reform is around the regulation of stablecoins – cryptocurrencies designed to maintain a stable value (often linked to fiat currencies like the pound or US dollar).

Stablecoins are increasingly being used for payments, trading between cryptoassets, and DeFi (decentralised finance). Because they resemble “normal” money, regulators see them as particularly important to manage.

Under the proposed regime:

1.  Stablecoins will be regulated as “money-like instruments” rather than investments

2. Stablecoin issuers must:

• • Hold sufficient backing assets (e.g. cash or government debt)

  • Allow redemption at face value (e.g. £1 for £1)

3. Different regulators may oversee different types of stablecoin:

• • FCA – non-systemic (i.e. less common, often not fiat-backed) stablecoins

  • Bank of England – systemic stablecoins

At the same time, HM Treasury is proposing amendments to support innovation, particularly in stablecoin-based payment systems.

The "Regulatory Perimeter"  

One of the biggest challenges has been defining what counts as a regulated crypto activity.

The FCA is now consulting on detailed “perimeter guidance” to clarify:

1.  When crypto trading becomes a regulated activity

2. Which firms need authorisation

3. How existing financial rules apply to crypto

This is important because many firms, and individuals, previously operated in a grey area. The new guidance aims to remove that ambiguity and provide legal certainty about who and what is covered.

What this means for crypto traders

For individuals who trade crypto, the new regime will bring several important changes.

• Better Protection – Once the regime is fully implemented, platforms will need FCA authorisation and must meet governance, risk management and customer protection standards. This should reduce the risk of fraud and platform failures.
• Greater Transparency – New disclosure requirements and market abuse rules (similar to stock markets) will aim to make pricing and risks clearer for retail traders.
• More Restrictions – New rules could limit certain high-risk products and reduce availability of some services in the UK. There could also be increased compliance costs which firms may pass on to users.

What about past losses? 

So there’s a new regime coming, but what happens to traders who lost money in the past, when the legal status of certain activities or products was unclear or outside regulation?

This is particularly relevant where certain activities that were previously unregulated or discouraged and are now becoming authorised or regulated.

The new regime will likely not provide automatic retrospective compensation for any losses sustained previously just because the rules have changed now.

However, past losses could still be relevant in certain circumstances.

Even before the new regime, crypto promotions were regulated. If a trader relied on misleading advertising, they may still have a legal claim to compensation under existing rules.

Additionally, if firms have carried out activities that were already regulated (for example derivatives trading) without proper authorisation, traders may likewise be able to bring a claim.

In conclusion 

The UK’s new crypto regulatory regime represents a significant turning point. It aims to bring clarity, protection, and credibility to a market that has long operated in uncertainty.

For new and existing investors, this could make crypto safer and more accessible. As the UK moves toward full implementation by 2027, the challenge will be balancing innovation with protection, ensuring that crypto can grow as a legitimate part of the financial system.

-----

We hope you've found this article of interest.

If you'd like to discuss it, or any other matters where we may be able to assist you, please contact David Rankin on david.rankin@puntersouthallgroup.com or Martin Finnegan on Martin.Finnegan@puntersouthall.law.