How fca-plans-to-integrate-stablecoins-into-payments-by-2026">UK Treasury’s Plan to Shift Crypto Firms Under FCA Oversight Will Change Regulation
The UK Treasury has announced plans to bring crypto firms under the full regulatory oversight of the Financial Conduct Authority (FCA), extending beyond the current limited regulation. This move aims to impose established financial regulatory standards on crypto businesses, raising compliance requirements and aligning UK crypto regulation with global trends.
What happened
The UK Treasury recently unveiled a plan to place crypto firms under the full regulatory supervision of the FCA. Currently, the FCA’s regulation of crypto activities is partial, covering areas such as crypto-asset promotions and anti-money laundering (AML) compliance for crypto exchanges. Under the new framework, this regulatory scope will broaden to include all crypto firms, subjecting them to the same standards as traditional financial services entities.
This extension of FCA authority will involve registration, authorization, and ongoing supervision of crypto firms, introducing heightened regulatory scrutiny. Firms will be required to comply with stricter AML protocols, investor protection measures, and other established financial regulations. These changes represent a move from a relatively fragmented crypto regulatory environment towards a more integrated and comprehensive regime.
The announcement situates the UK alongside other major jurisdictions adopting enhanced crypto regulation. For instance, the European Union’s Markets in Crypto-Assets (MiCA) framework is a prominent example of comprehensive crypto regulation in the region, and the United States has also signaled intentions to increase oversight, albeit with ongoing regulatory uncertainty. The UK’s approach seeks to balance alignment with these global trends while maintaining regulatory independence following Brexit.
Industry and regulatory sources interpret the Treasury’s plan as an effort to increase consumer protections and market integrity by applying established financial regulatory frameworks to crypto businesses, which have historically operated in a loosely regulated environment. Some analysts view this as a strategy to boost institutional confidence and attract legitimate crypto firms to the UK by providing clearer regulatory guidelines. Conversely, there are concerns from some quarters that the increased regulatory burden could stifle innovation or force smaller firms out of the market due to compliance costs.
Why this matters
Bringing crypto firms under full FCA oversight marks a significant structural shift in the UK’s regulatory landscape. By applying the same regulatory standards used for traditional financial institutions, the Treasury aims to enhance investor protection, reduce financial crime risks, and improve market integrity within the crypto sector. This is particularly important as crypto assets become increasingly mainstream and integrated into broader financial markets.
The move could also influence the UK’s position in the global crypto ecosystem. Clearer and more stringent regulation may increase institutional and retail investor confidence, potentially attracting more established crypto businesses to operate in the UK. This aligns with the government’s broader objective of positioning the UK as a leading global financial centre post-Brexit.
At the same time, the increased compliance requirements and supervisory scrutiny are likely to raise operational costs for crypto firms. This could lead to market consolidation, with smaller or less compliant firms exiting or being acquired. The balance between fostering innovation and ensuring risk mitigation will be a key challenge for regulators and market participants alike.
What remains unclear
Despite the announcement, several critical details about the implementation and scope of the new regulatory framework remain unspecified. Notably, the exact timeline for when crypto firms must transition to full FCA oversight has not been disclosed. It is unclear how quickly firms will be expected to comply with the new requirements.
Another significant unknown is how the FCA plans to regulate decentralized finance (DeFi) projects and non-custodial services, which do not fit neatly into traditional firm-based regulatory models. The absence of detailed guidance on this front leaves open questions about the regulatory reach over emerging crypto business models.
There is also no official information regarding support mechanisms or phased approaches for existing crypto firms that may struggle to meet the new standards or afford compliance costs. How the FCA will manage firms that fail to comply or the potential impact on market structure remains to be seen.
Cross-border regulatory considerations are another area lacking clarity. Given that many crypto firms operate internationally, how the UK’s framework will interact with other jurisdictions’ rules, particularly in the context of ongoing global regulatory developments, has not been addressed.
Finally, there is a lack of publicly available data on the number of crypto firms currently operating in the UK that will be affected, and no empirical evidence yet on the anticipated market impact, such as firm closures, investor behavior changes, or market consolidation.
What to watch next
- The UK Treasury and FCA’s forthcoming announcements detailing the timeline and phased implementation plan for bringing crypto firms under full FCA oversight.
- Regulatory guidance from the FCA on how decentralized finance (DeFi) protocols and non-custodial crypto services will be addressed within the new framework.
- Publication of specific regulatory requirements, including registration, authorization, AML compliance, and investor protection measures tailored to crypto firms.
- Any indications of support mechanisms or transitional arrangements to assist smaller or emerging crypto firms in meeting the new compliance standards.
- Developments in cross-border regulatory coordination, especially how the UK’s approach will interact with the EU’s MiCA framework and regulatory regimes in the United States and other major jurisdictions.
The UK Treasury’s plan to extend full FCA oversight over crypto firms represents a pivotal moment in the evolution of crypto regulation in the UK. While it promises enhanced consumer protections and alignment with global regulatory trends, the absence of detailed implementation plans and guidance on emerging crypto models leaves significant questions unanswered. Market participants and observers will be closely monitoring forthcoming regulatory disclosures to understand the full implications of this transformative policy shift.
Source: https://decrypt.co/352317/uk-treasury-plans-to-bring-crypto-firms-under-full-fca-oversight. This article is based on verified research material available at the time of writing. Where information is limited or unavailable, this is stated explicitly.