U.K.
Future U.K. regulatory framework for stablecoins
HMT confirmed at the end of last year that it is proceeding with the proposals for new regulated activities for stablecoins as set out by the previous government. However, these proposals will now be implemented to the same timetable as the rest of the proposed regulatory regime for cryptoassets and will no longer be introduced through a phased approach (see the item below on the Future U.K. financial services regulatory regime for cryptoassets).
On 6 November 2023, the FCA published a discussion paper setting out how it might regulate fiat-backed stablecoins as a means of payment. The paper proposes two means by which a fiat-backed stablecoin may access U.K. payment chains, either: (i) via U.K. based fiat- backed stablecoin issuers and custodians; or (ii) in the case of stablecoins issued overseas, following approval by a U.K. based “payment arranger”. Each “gateway” would be facilitated by an extension of the regulatory perimeter. The use of fiat-backed stablecoins in payment chains would be regulated through amendments to the Payment Services Regulations 2017. Activities of issuance and custody of fiat-backed stablecoins where the coin is issued in or from the U.K. would be brought within the regulatory perimeter of the Financial Services and Markets Act 2000 (FSMA) through the FSMA (Regulated Activities) Order 2001. The government has already started to implement this regime through the Financial Services and Markets Act 2023 (FSMA 2023).
FSMA 2023 also provides the Bank of England and Payment Systems Regulator with powers over systemic and recognised digital settlement asset payment systems and service providers, subject to HMT’s recognition and designation. The Bank of England’s discussion paper, also published on 6 November 2023, deals with the specific issue of how systemic payment systems using stablecoins and related service providers should be regulated. At this stage, the Bank of England’s focus is specifically on sterling-denominated payments, because it considers these are the most likely digital settlement assets to be used widely for payments. Currently, the Bank of England hasn’t identified any existing stablecoins which would be brought within its remit as systemic. The proposed regulatory regime for systemic stablecoin systems would include oversight of a variety of business models. Whilst the entity providing the payment/transfer function would remain the Bank of England’s “regulatory hook”, the regime could also capture the stablecoin issuer, the custodian and the provider of the “customer interface” (if different legal entities). The Bank of England is still considering the responses it received in relation to this discussion paper.
HMT has indicated that it will introduce secondary legislation for regulation of activities relating to fiat-backed stablecoins within the FSMA regulatory framework, as early as possible in 2025. The FCA also plans to publish a consultation paper on the proposed regulation for stablecoins in H1 2025.
Future U.K. financial services regulatory regime for cryptoassets
The proposed U.K. regulatory framework for cryptoassets is still a work in progress. HMT published its response to industry feedback following its February 2023 consultation on the future financial services regulatory regime for cryptoassets. The consultation paper set out HMT’s initial policy proposals to extend regulation to a broad suite of cryptoasset activities in the U.K., including the exchange, investment, custody, and lending of cryptoassets. The consultation paper also proposed regimes for a range of cross-cutting issues, which apply across cryptoasset activities and business models, including market abuse and cryptoasset issuance and disclosures.
In its October 2023 response, the U.K. government confirmed its intention to bring these cryptoasset activities into the regulatory perimeter for financial services. Firms undertaking cryptoasset activities will need to be authorised under a new FSMA-based regime and comply with prudential requirements, data reporting, consumer protection, location policy and operational resilience. For more information, please see our blog post here.
Towards the end of last year, the government confirmed that it will implement in full HMT’s October 2023 proposals for the financial services regulation of cryptoassets. In addition, on 26 November 2024, the FCA published a crypto roadmap setting out its planned policy publications for cryptoassets, where it is seeking feedback, and the content they are expected to cover.
The roadmap provides a timeline for the publication of discussion papers, consultation papers and policy statements relating to the regulation of both stablecoins and cryptoassets. According to the roadmap, the FCA plans to publish all policy statements and final rules in 2026, with the FCA’s cryptoasset regime to go live sometime after that. The FCA notes that the roadmap is not exhaustive, and that all timelines are subject to change according to parliamentary time and future steers from the government.
In December 2024, in accordance with the crypto roadmap, the FCA published its discussion paper ‘Regulating cryptoassets: Admissions & Disclosures and Market Abuse Regime for Cryptoassets’, marking another step forward in the development of the U.K.’s regulatory framework for crypto. For Admissions and Disclosures, the discussion paper covers key topics on the processes, disclosures, liability, due diligence and use of the National Storage Mechanism. The regime will form part of the other pre-trade regimes for crypto such as the ‘travel rule’, the financial promotion regime and ESG disclosures. The FCA’s starting point is the new public offers and admissions to trading regulations regime (which is currently under consultation), tailored for the purposes of unique crypto features such as the role (or lack) of issuers and the operations of cryptoasset trading platforms.
For the Market Abuse Regime, the discussion paper covers systems and controls, information sharing and disclosure of inside information. The FCA’s starting point is the pre-existing market abuse regime and the proposals seek to transfer, conceptually, the key requirements to the crypto environment. On the question of how to maximise market surveillance by enabling cross-platform information sharing, the FCA confirms that it does not intend, currently, to establish an FCA-operated mechanism but expects an industry-led sharing mechanism (which operates on a private-to-private basis) would be better and would allow flexibility. The deadline for comments is 14 March 2025, and the FCA is aiming to publish a follow-up consultation paper in Q3 2025.
As a parallel workstream, the roadmap indicates that in H1 2025, the FCA also expects to publish discussion papers on trading platforms, intermediation, lending and staking, and prudential considerations (with a consultation paper to follow in Q4 2025 or Q1 2026). A consultation paper on conduct and firm standards for all Regulated Activities Order activities, including draft provisions on systems and controls including operational resilience and financial crime, Consumer Duty, conduct (COBS) and governance including the Senior Managers and Certification Regime is also expected in Q3 2025.
Digital pound
With the belief that ‘public’ money will become increasingly less useful and useable and of shrinking relevance to a large part of the population, HMT and the Bank of England consulted on a U.K. retail central bank digital currency (CBDC) in February 2023. The digital pound would be issued by the Bank of England and could be used by households and businesses for everyday payments in-store and online. If introduced, it would be interchangeable with cash and bank deposits. In January 2024, the Bank of England and HMT published a response to their joint consultation paper. The Bank of England and HMT have made no final decision on whether they will introduce a digital pound. However, they believe that the design of a digital pound as proposed remains appropriate. They confirm that primary legislation to guarantee users’ privacy and control is an important aspect of the proposals, and that neither the Bank of England nor the government would have access to users’ personal data.
They also commit to maintaining access to cash for those who prefer it, should a digital pound be introduced. Other key design principles include that a digital pound is reliable and secure, supports innovation, is interoperable, adaptable and scalable, is inclusive and attractive, and is energy efficient.
The Bank of England has confirmed that the earliest it would issue a digital pound would be the second half of this decade. It is now in a design phase which will look at the technology and policy requirements for a digital pound over the next two to three years. In the design phase, the Bank of England will test how the digital pound could work in the real world. It will also carry out detailed assessments to work out exactly how a digital pound would operate. At the end of this phase, the Bank of England will have enough information to make a decision on whether to move into a build phase. Parliament will also have a say before any digital pound is launched, and further public consultation will be held. Whilst continuing to consider a Bank of England-issued digital pound, the Bank of England has also encouraged the development of possible private sector alternatives.
Property (Digital Assets etc) Bill
The Property (Digital Assets etc) Bill will give effect to recommendations in the Law Commission’s 2023 report on digital assets to confirm in statute that a thing that is digital or electronic in nature is not prevented from being personal property. Although the Law Commission’s work was focused on cryptoassets in particular, the Bill does not mention cryptoassets specifically, nor is its scope restricted to them. In the explanatory memorandum, it states that the Bill’s reference to things that are “digital or electronic in nature” is not necessary in legal terms, but is included for context because digital things such as crypto-tokens are likely to be the main type of thing that users of the law will be concerned with, at least in the short to medium term.
The Bill had its second reading in Grand Committee in the House of Lords on 6 November 2024, before being read formally in the House of Lords Chamber on 13 November 2024. On 19 November 2024, the House of Lords announced that a Special Public Bill Committee established to consider the Property (Digital Assets etc) Bill had issued a call for evidence. The deadline for comments was 20 December 2024.
EU
MiCAR
The European Commission’s Regulation on markets in cryptoassets (known as MiCAR) establishes a new EU legal framework for a broad range of cryptoassets that are not covered by existing EU financial services legislation, and introduces specific rules for stablecoins, which are divided into e-money tokens (EMTs) and asset-referenced tokens (ARTs).
MiCAR has applied fully since 30 December 2024, subject to certain transitional measures, whilst the provisions related to issuers of ARTs and EMTs have applied since 30 June 2024.
MiCAR introduces requirements for cryptoasset issuers and cryptoasset service providers (CASPs) relating to: (i) transparency and disclosure for the issuance, offer to the public and admission to trading of cryptoassets. This includes an obligation on all issuers of cryptoassets that fall within the scope of MiCAR to publish an information document, called a white paper, setting out mandatory disclosures. The white paper must be notified to competent authorities, who may require modifications (although there is no pre-approval requirement before publication). Additional disclosures are required for ARTs and EMTs; (ii) authorisation of CASPs and issuers of ARTs (unless they are already authorised under existing financial services legislation); (iii) supervision of CASPs, issuers of ARTs and issuers of EMTs, including powers for the European Supervisory Authorities to supervise certain “significant” issuers and CASPs; (iv) operation, organisation and governance of CASPs, issuers of ARTs and issuers of EMTs; (v) consumer protection in the issuance, offer to the public and trading, exchange and custody of cryptoassets; (vi) prevention of insider dealing, unlawful disclosure of inside information and market manipulation related to cryptoassets; and (vii) a change in control regime governing the acquisition of interests in CASPs.
MiCAR contains around 35 different mandates for delegated acts, regulatory technical standards and implementing technical standards. The European Supervisory Authorities (namely ESMA and the EBA) delivered these drafts in the course of 2024.
The European Commission has since been able to adopt many of these draft standards. Some have, following scrutiny by the European Parliament and Council, been published in the Official Journal. Others have been adopted but are still subject to scrutiny, and some are yet to be adopted. Once these remaining standards are adopted and come into force during the course of 2025, the EU framework for cryptoassets will be complete.
Please see the Prudential regulation section for further information on the “Prudential regimes for Cryptoassets exposures”, including the prudential requirements under MiCAR.
The recast revised Wire Transfer Regulation, which extends the scope of the ‘travel rule’ to the transfer of certain cryptoassets, has applied since 30 December 2024. The European Banking Authority’s ‘travel rule’ guidance under the recast revised Wire Transfer Regulation also started to apply on 30 December 2024. These guidelines specify the steps that payment service providers (PSPs) and intermediary PSPs (IPSPs), CASPs and intermediary CASPs (ICASPs) should take to detect missing or incomplete information that accompanies a transfer of funds or cryptoassets, and the procedures they should establish to manage a transfer of funds or a transfer of cryptoassets that lacks the required information.
For more information on MiCAR, please see our bulletins:
Digital euro
The digital euro project is the European Central Bank’s (ECB) response to the changing landscape of consumer payments, driven by the rise of cryptocurrency, payment fintechs and electronic transactions. A digital euro would be a new form of digital money, issued and supervised by the ECB as a central bank digital currency (CBDC). To advance the development and implementation of this project, on 28 June 2023, the European Commission presented the digital euro package. This legislative package includes a Regulation establishing the legal framework for a possible digital euro. The digital euro would be a supplement to euro cash. It would take the form of a universal means of payment across the euro area, which would hold legal tender status (as euro cash) and be widely accepted as a means of payment.
The digital euro project is now in its preparation phase, which lays the foundations for the potential issuance of a digital euro. The preparation phase began in November 2023 and will initially last two years, until 31 October 2025. It involves finalising the digital euro rulebook and selecting providers that could develop a digital euro platform and infrastructure. It will also include testing and experimentation to develop a digital euro that meets both the Eurosystem’s requirements and user needs, for example in terms of user experience, privacy, financial inclusion and environmental footprint. The launch of the preparation phase is not a decision on whether to issue a digital euro.
That decision is only due be considered by the ECB once the European Union’s legislative process has been completed. The ECB will take into account any adjustments to the design of the digital euro that may become necessary as a result of the legislative deliberations.
In 2024, the ECB published two progress reports on the preparation phase of a digital euro. On 2 December 2024, the ECB published its second progress report, stating that since the publication of its first report, the ECB has updated its digital euro scheme rulebook. It also sets out that in 2025, among other things, the ECB will: (i) publish the outcome of its call for applications for selecting potential providers of digital euro components and related services. The ECB has already invited selected bidders to tender; (ii) set out the findings from newly launched research and experimentation activities to gather insights into users’ preferences and to inform decision-making for a possible digital euro; (iii) test the proposed methodology for setting digital euro holding limits, balancing user experience with monetary policy and financial stability implications. The next progress report is expected in Q2 2025. At that point, the ECB will publicly consult on the draft rulebook text.
From November 2025, the ECB will decide whether to move to the next stage of preparations, to pave the way for the possible future issuance and roll-out of a digital euro.
Download the full report.
