How Will fca-plans-to-integrate-stablecoins-into-payments-by-2026">UK Treasury’s Plan to Put Crypto Firms Under FCA Oversight Change Regulation?

The UK Treasury has announced plans to extend full regulatory oversight of crypto firms to the Financial Conduct Authority (FCA), moving beyond the current limited anti-money laundering supervision. This shift aims to enhance consumer protection, market integrity, and prudential standards within the UK’s crypto sector, marking a significant regulatory evolution amid global efforts to clarify crypto markets’ legal frameworks.

What happened

The UK Treasury has confirmed its intention to bring all crypto firms under the FCA’s comprehensive regulatory regime. Currently, the FCA’s authority over cryptoassets is limited primarily to regulating derivatives and enforcing anti-money laundering (AML) rules on certain crypto firms. The Treasury’s proposal would expand this oversight to cover the full spectrum of crypto activities, imposing FCA standards related to consumer protection, market integrity, and prudential requirements.

This initiative is part of a broader UK government strategy outlined in the Economic Crime Plan 2022-25, which aims to establish the UK as a global hub for crypto innovation supported by robust regulation. The FCA’s expanded role will introduce new compliance requirements for crypto firms, including enhanced reporting obligations, governance standards, and prudential safeguards, as indicated in recent FCA consultation papers.

Market participants stand to benefit from increased protections under the FCA’s established enforcement powers, which are expected to improve market integrity and reduce risks associated with unregulated crypto activities. This move aligns the UK with other jurisdictions pursuing comprehensive crypto regulation, such as the European Union’s Markets in Crypto-Assets Regulation (MiCA).

Interpretations from industry analysts suggest the Treasury’s plan aims to close existing regulatory gaps that expose consumers and markets to risks inherent in largely unregulated crypto activities. The UK government sees this as a way to boost trust and legitimacy in the crypto sector, potentially attracting institutional investment and fostering innovation. However, some observers caution that the increased compliance burden may challenge smaller startups and could influence firms’ decisions on where to operate.

Why this matters

Bringing crypto firms under the FCA’s full regulatory umbrella represents a structural shift in the UK’s approach to crypto markets. Unlike the current fragmented oversight, this expansion aims to create a unified, comprehensive framework that addresses a wider range of risks, from consumer protection failures to market abuse and financial instability.

For market participants, the introduction of prudential standards and conduct requirements means firms will need to enhance their internal controls, governance, and transparency. This could increase operational costs but also raise the overall quality and resilience of the UK crypto sector. The FCA’s enforcement capabilities, including sanctions and penalties, provide a mechanism to deter misconduct and protect investors.

On a broader scale, the UK’s plan positions it competitively in the global race to regulate crypto markets. By aligning with international trends toward comprehensive regulation, the UK seeks to attract institutional capital and innovation while managing risks. This approach contrasts with jurisdictions that have either imposed more restrictive bans or maintained lighter-touch regimes, potentially offering a balanced model for others to consider.

What remains unclear

Despite the confirmed plans, several key details remain unspecified. The Treasury and FCA have not released a timeline or phased plan for implementing full FCA oversight of all crypto firms. It is also unclear how the FCA will regulate the diverse and rapidly evolving range of crypto activities, including decentralized finance (DeFi) platforms, non-fungible tokens (NFTs), and stablecoins.

The impact of these regulatory changes on smaller crypto firms and startups, particularly regarding compliance costs and operational feasibility, has not been comprehensively studied or disclosed. Furthermore, there is no publicly available information on how the FCA will coordinate with other UK regulatory bodies, such as the Bank of England or Prudential Regulation Authority, especially concerning prudential risks.

The absence of finalized regulatory rulebooks or legislative texts leaves important questions about enforcement mechanisms, penalties, and international regulatory cooperation unanswered. This lack of granular detail limits the ability to fully assess the practical implications of the expanded oversight.

What to watch next

The publication of detailed timelines and phased implementation plans for bringing all crypto firms under FCA regulation.
The FCA’s release of specific regulatory guidelines addressing how different crypto activities, such as DeFi, NFTs, and stablecoins, will be supervised.
Disclosure of the FCA’s approach to coordinating with other UK regulators on crypto prudential and systemic risks.
Economic impact studies or consultations examining the compliance burden on smaller crypto firms and startups.
Updates on enforcement frameworks, including penalties and sanctions tailored to crypto firms under the new regime.

While the UK Treasury’s plan marks a significant step toward comprehensive crypto regulation, critical details about implementation and scope remain unresolved. The balance between fostering innovation and managing risk will depend on forthcoming regulatory clarifications and the sector’s response to increased compliance demands.

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.