FCA’s Next Steps in Crypto Regulation: What It Means for the UK

 

 

Cryptocurrencies are no longer a niche interest, and the UK is working to ensure it keeps pace with global developments in regulating these assets.

Rising Crypto Adoption in the UK

Recent research by the FCA reveals a sharp rise in cryptocurrency adoption across the UK. As of 2024, approximately 12% of the adult population, translating to around 7 million individuals, own digital assets. This marks a jump from 10% in 2022, driven by a shift from speculative gambling to more strategic and investment-oriented use cases. The mean value of crypto holdings has climbed from £1,595 to £1,842, reflecting growing confidence among investors.

Interestingly, stablecoins like Tether (USDT) have seen a surge in popularity, owned by 18% of respondents compared to just 6% three years prior. This trend highlights a pragmatic shift among British users who view cryptocurrencies as viable components of diversified portfolios.

Bridging Crypto and Fiat Economies

One notable takeaway from the FCA’s research is the rising demand for seamless integration between crypto and fiat currencies. In 2024, 43% of crypto owners reported converting digital assets to fiat, up from 33% in 2022. Additionally, one in five British crypto users has utilized cryptocurrencies to purchase goods and services. This evolution signifies the transition of cryptocurrencies from niche assets to tools for everyday financial transactions.

This growing appetite for crypto-fiat bridges presents opportunities for businesses to develop user-friendly solutions that integrate traditional and digital finance. Enterprises that embrace these trends are likely to gain a competitive edge while contributing to the wider adoption of cryptocurrencies in the UK economy.

Regulatory Evolution: FCA’s Discussion Paper DP24/4

In November 2024, the FCA released its discussion paper DP24/4, outlining proposed rules for admissions and disclosures (A&D) and market abuse in the cryptoasset sector. The initiative marks a critical step in the regulatory framework for digital assets, with feedback requested by March 14, 2025. This consultation period reflects the FCA’s intent to collaborate with industry stakeholders to craft balanced and effective regulations.

Key highlights of the proposed admissions and disclosures regime include:

• Transparency and Investor Protection: Crypto issuers and exchanges must provide detailed information about cryptoassets, including features, risks, and underlying technologies. This approach mirrors the standards of the traditional securities market.

• Due Diligence Obligations: Exchanges are required to conduct thorough assessments of issuers, offerors, and cryptoassets. The aim is to mitigate risks of fraud, scams, and technological vulnerabilities, thereby enhancing consumer confidence.

• Public Accountability: Admission documents must be filed on the National Storage Mechanism (NSM) in a machine-readable format, ensuring easy access for investors and fostering market transparency.

Exemptions and Flexibility

The proposed regulations also include exemptions for certain types of cryptoasset offers, such as those targeting qualified investors or listed on approved exchanges. Additionally, exchanges will have discretion in setting detailed disclosure requirements for specific cryptoassets. While this flexibility accommodates the dynamic nature of the market, the FCA is exploring the feasibility of standardized templates to ensure consistency across the industry.

Implications for Market Participants

The FCA’s regulatory roadmap signals both opportunities and challenges for crypto businesses operating in the UK. Companies like GSR, which recently became the first crypto liquidity provider authorized by both the FCA and the Monetary Authority of Singapore (MAS), exemplify the benefits of proactive compliance. With FCA approval, GSR can now offer over-the-counter and programmatic trading services within the UK, bolstering its position as a global leader in the sector.

As the FCA tightens oversight, businesses must adapt to evolving compliance standards. This includes preparing detailed disclosures, implementing robust due diligence processes, and addressing risks related to technology and governance. Firms that align with these requirements stand to gain from increased credibility and market access.

Challenges and Enforcement Gaps

Despite its progressive stance, the FCA faces hurdles in enforcing compliance across the crypto industry. In 2024 alone, the regulator received 1,702 complaints about illegal crypto advertisements but achieved action on just 54% of cases. This raises questions about the agency’s capacity to monitor and enforce its rules effectively.

High-profile controversies, such as TikTok’s alleged operation of an unregistered crypto exchange and the Solana-based platform Pump.fun banning UK users, further underscore the need for a robust regulatory framework. Addressing these gaps will be crucial to fostering trust and stability in the market.

Looking Ahead

The UK government’s commitment to regulating cryptocurrencies reflects a broader global trend. The FCA’s roadmap aligns with efforts in the United States and the European Union to establish clear rules for digital assets. With additional publications on trading platforms, staking, and stablecoins expected in early 2025, the UK is poised to take a leadership role in shaping the future of cryptocurrency regulation.

For businesses and investors alike, the FCA’s evolving framework offers a roadmap to navigate the complexities of the crypto sector. By prioritizing transparency, consumer protection, and seamless integration with traditional finance, the UK can solidify its position as a hub for innovation and responsible growth in the digital asset sector.