UK Unveils Draft Crypto Regulations to Rein In Sector, Spur Innovation

The draft legislation, part of the government’s broader “Plan for Change” strategy, outlines the responsibilities and compliance requirements for crypto exchanges, brokers, custodians, and other market participants. These entities will need to implement anti-market abuse safeguards, robust operational standards, and clear disclosure obligations, similar to those imposed on mainstream financial institutions.

The proposed rules are designed to close long-standing regulatory gaps by requiring all crypto platforms servicing UK customers to register with the Financial Conduct Authority (FCA), comply with anti-money laundering rules, and provide clear information to investors. They also introduce stricter rules around custodianship of digital assets and prevent insider trading and price manipulation, issues that have plagued the industry in the absence of a formal regulatory structure.

Rachel Reeves, Chancellor of the Exchequer, said “Through our Plan for Change, we are making Britain the best place in the world to innovate — and the safest place for consumers. Robust rules around crypto will boost investor confidence, support the growth of Fintech and protect people across the UK”.

Interestingly, the legislation exempts non-UK stablecoin issuers from immediate compliance, signaling an attempt to foster global collaboration, especially with regulatory counterparts in the U.S. and Europe. However, the UK plans to release a dedicated regulatory regime for stablecoins later this year, including rules on issuance, asset backing, redemption, and custody.

The timing of the legislation reflects the rapid adoption of crypto assets by both retail and institutional players in the UK. According to recent FCA data, over 12% of British adults have owned or transacted in cryptocurrencies, up from just 4% in 2021. The government is responding to these trends by creating a safer environment that encourages responsible innovation while protecting users from systemic and fraud-related risks.

The UK has previously signaled its ambition to become a global hub for digital asset innovation. The new draft rules underscore this commitment by balancing pro-growth strategies with clear regulatory boundaries, something that has been missing in the post-Brexit financial services agenda.

While many crypto firms welcomed the clarity provided by the draft rules, some have voiced concern over the potential compliance burden and the risk of stifling innovation. Several industry leaders cautioned that poorly executed regulations could give users a “false sense of security” about the inherent risks of crypto assets.

Still, the general tone among major players is cautiously optimistic. Firms like Blockchain.com and Copper have praised the Treasury’s consultative approach and focus on long-term stability. Analysts also note that clear rules could pave the way for greater institutional investment and product development, including tokenized securities and regulated derivatives.

The Treasury is accepting technical feedback on the draft until May 25, 2025. Final legislation is expected by the end of the year, after which the FCA will publish a series of supporting policy statements and implementation guidance.

The government also plans to roll out additional measures covering disclosures, anti-market abuse controls, and the operation of cryptoasset trading venues. By 2026, the UK aims to have a fully regulated digital asset regime in place, with the FCA taking a leading role in enforcement and supervision.

In a global environment where regulatory clarity is becoming a key differentiator for crypto businesses, the UK’s initiative may strengthen its position as a premier destination for blockchain innovation, so long as it successfully balances security and scalability.