Rachel Reeves Announces New Rules for Cryptoasset Services Firms

Fintech Week in London last week saw U.K Chancellor Rachel Reeves announcing that firms offering cryptoasset services will be subject to new clear rules

Fintech Week in London last week saw U.K Chancellor Rachel Reeves announce that firms offering cryptoasset services will be subject to new clear rules aimed at boosting investor confidence and driving growth.

It is estimated that 12 percent of U.K. adults now own or have owned crypto, up from just four percent in 2021, and the Government is concerned about the risks that cryptoassets present to retail customers, and in particular scams and fraud.

Reeves said, “Through our Plan for Change, we are making Britain the best place in the world to innovate — and the safest place for consumers. Robust rules around crypto will boost investor confidence, support the growth of Fintech and protect people across the U.K.”

Crypto firms with U.K. customers will also have to meet clear standards on transparency, consumer protection, and operational resilience, just like firms in traditional finance.

The long-awaited new rules, published by HM Treasury just before Fintech Week, are being deployed as a Statutory Instrument (SI) under the Financial Services and Markets Act 2023 are currently in draft and open for comments until 23rd May.

The new rules were shortly followed by the Financial Conduct Authority’s (FCA’s) DP25/1: Regulating cryptoasset activities, which is also open for public comment until June 13th. It is expected that industry will put forward strong responses to both given the mixed feedback on the proposals around the virtual water cooler.

The Chancellor also announced that the U.K. and U.S. will use the upcoming U.K. – U.S. Financial Regulatory Working Group for crypto and digital assets policy engagement. Industry anticipates a possible collaboration using cross-border industry sandboxes, leveraging the U.K.’s Digital Securities Sandbox.

This willingness to drive forward cross-border collaboration was followed by remarks from Bank of England (BoE) Deputy Governor Sarah Breeden who discussed next steps for the U.K. stablecoin regime during a panel session at the Point Zero Forum in Zurich this week where she also re-emphasised the importance of working across borders.

The proposed cross-border collaboration, on top of the first and newly announced U.S. trade deal with the U.K. leaves industry players with high expectations of a strong cross border “special relationship” on key policy and regulation for crypto and digital assets.

“The clarity of purpose in the U.K. government, combined with new rules coming into force for digital assets, will undoubtedly play to strengths in the U.K. economy creating a key opportunity to forge U.S - U.K. regulatory harmonization and investment opportunities,” says Dante Disparte, chief strategy officer and head of global policy and operations at Circle.

Looking Across The Channel

The SI is directed at regulating cryptoassets and stablecoins and sets out some key important provisions. The proposals include the creation of a new category of specified investments which will cover qualifying cryptoassets and stablecoins.

The SI also includes a new specified activity of stablecoin issuance, and authorisation requirements for issuers includes a delineation between crypto and traditional securitites and the exemption of pure DeFi, further clarifying the U.K.’s regulatory perimeter.

While there are some similarities between the proposed U.K regs to other global regimes such as the E.U.’s MiCA, the pending U.S. Senate Banking’s GENIUS Act and Abu Dhabi’s already established Fiat Referenced Token Regime, industry policy analysts point out some discrepancies which are a cause for concern for the U.K. from a competition perspective.

“The U.K.’s proposals are a step in the right direction and show clear intent to engage with the stablecoin market thoughtfully, recognising the role of overseas-issued tokens is a sensible move and reflects a more pragmatic approach than what we’ve seen in the EU under MiCA. But it’s important that the U.K. doesn’t replicate some of MiCA’s flaws which risk stifling innovation and undermining financial stability. We look forward to continuing dialogue to help shape a framework that supports both innovation and user protection,” said Paolo Ardoino, the chief executive officer of Tether.

While some are concerned about MiCA's shortcomings, it is notable that MiCA is widely seen as the one of the most comprehensive global frameworks for cryptoassets. The regulatory certainty and legal clarity it brings means that large institutional players have already started to scale there.

Jean-Marc Stenger, chief executive officer of Societe Generale – FORGE says, “Europe has been at the forefront in terms of regulation. The entry into force of the MiCA regime reshapes the market in the E.U. and opens up a window of opportunity. This is the first time that we have a clear, homogeneous, relatively broad, and ambitious framework that is directly applicable throughout the E.U. For Societe Generale - FORGE, offering a MiCA-compliant