Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
UK Publishes Draft Rules for Crypto Regulation
Regulation | May 5, 2025
Image: Freepik/fabrikasimf
UK Finalizes Draft Crypto Legislation as Sector Faces Regulation
On April 29, 2025 during UK Fintech Week, the UK government published draft rules to bring cryptoasset firms under its financial services regulatory framework. The rules have been in the works for many years with the goal to protect consumers and stop fraud while giving fintech firms clear rules to innovate. If adopted, the new rules would apply to crypto companies based in the UK and also overseas if they serve UK customers including crypto trading, custody, brokering and marketing related firms operating in the sector. Read the 'Future financial services regulatory regime policy note (accessible)'.
The draft version is being published for technical feedback only (not policy direction) with stakeholder comments due by May 23, 2025. Rules around market abuse and token listings are not yet included, and will be published later.
See: UK FCA Plans Full Crypto Licensing Regime by 2026
The UK's crypto legislation follows years of planning. In 2018, the UK created the Cryptoassets Taskforce to better understand how crypto fits into financial markets. By 2022, the government committed to becoming a global crypto hub. In 2023, it launched a consultation to bring crypto into the Financial Services and Markets Act.
Regulatory Scope
The Regulated Activities Order (RAO) is being expanded to cover crypto, and will replace the lighter anti-money laundering registration model currently in place.
- Crypto exchanges, custodians, dealer-brokers, and cryptoasset lending platforms must register with the Financial Conduct Authority (FCA)
- Firms serving UK customers must meet UK standards, even if based abroad
- Covered activities include trading, marketing, safekeeping, brokering, dealing, lending, staking, and stablecoin issuance
- Firms will need to meet new requirements on transparency, complaints handling, and operational resilience
- The FCA plans to ban retail investors from using borrowed funds to purchase crypto
The draft legislation doesn't include separate rules for decentralized finance (DeFi) but it makes clear that authorization is still required if a person or entity is in fact effectively controlling or operating a regulated activity, such as governance, interfaces, and service providers connected to decentralized trading platforms, staking, custody, or stablecoin models.
See: UK’s Regulatory Crypto Roadmap from Sandbox to Mainstream
Interestingly, if a DeFi protocol is truly autonomous and doesn't have an identifiable party conducting business activity, it may fall outside the scope. However in reality, most DeFi projects today that offer user interfaces, save admin keys, touch fees or tokens could be subject to UK regulation.
How the UK and Canada Compare on Crypto Regulation
In the UK, cryptoassets will be regulated under the same legal framework used for mainstream financial services. The new rules bring crypto into the Financial Services and Markets Act 2000 (FSMA), which currently oversees banking, securities, and insurance. Crypto firms must be authorized by the FCA and meet detailed standards for conduct, custody, and consumer protection.
In Canada, regulation falls under securities law. The Canadian Securities Administrators (CSA) and provincial regulators such as the Ontario Securities Commission (OSC) treat many crypto tokens as securities or derivatives. Platforms are expected to register as dealers or marketplaces, but there isn't a separate regime for stablecoin issuers or crypto payments.
The UK has introduced a dedicated framework for qualifying stablecoins. While Canada does not have a separate regime for stablecoin issuers, they refer to them as value-referenced crypto assets (VRCAs) and certain trading conditions apply for registered platforms only.
The FCA is planing to ban retail from purchasing cryptocurrencies using borrowed funds. Canada has not gone that far but Canadian platforms must conduct suitability and risk assessments.
Both countries operate sandboxes. The UK launched a Digital Securities Sandbox (DSS) on Sep 30, 2024, see joint policy statement by the Bank of England at the FCA. DSS allows firms to test new financial market technologies, such as distributed ledger technology (DLT) in a real world environment under a temporarily modified legal and regulatory framework to support innovation.
The UK and US are exploring closer cooperation on digital assets, including a potential joint transatlantic sandbox for digital securities. The initiative was discussed by Chancellor Rachel Reeves and US Treasury Secretary Scott Bessent, and will be taken advanced through the UK–US Financial Regulatory Working Group with the goal of supporting responsible innovation across both markets.
See: UK vs. Canada: A Tale of Two Different Crypto Consumers
Canada has had a regulatory sandbox since 2017, which helped firms like Wealthsimple Digital Assets gain conditional approval. However Canada’s sandbox is domestically focused on exemptions, while the UK is pushing for global coordination.
The differences between the UK's approach and Canada's is structural. The UK is building crypto into its core financial regulation while Canada continues to fit crypto into its existing securities regime.
Why This Matters
UK rules will influence global standards. For Canadian firms with UK clients, the operating requirements and costs are about to get a lot more challenging and rise. The UK's approach also puts pressure on all global regulators including Canada to clarify and modernize their own crypto frameworks. The final version of the UK's crypto rules is expected later this year. The UK also said they would release a Financial Services Growth Strategy on 15 July 2025 to outline its long term financial technology priorities.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
 |  |  |
|---|---|---|
 |  |  |
Leave a Reply