In February, the UK government introduced draft legislation before Parliament for the regulation of cryptoassets. Under the new regime, the UK’s Financial Conduct Authority (FCA) will be given powers to regulate the growing cryptoasset sector – including cryptocurrencies such as Bitcoin, stablecoins and non-fungible tokens – in much the same way as it does traditional financial services companies.

The regulatory plans seek to balance the promotion of innovation and competition while protecting market integrity and consumers. They set out what some commentators describe as a ‘third way’ between America’s regulatory approach and that of the EU. The UK government hopes that by establishing a comprehensive regulatory regime for cryptoassets, transparency and oversight will be enhanced, making it easier to detect suspicious activity, enforce sanctions and hold businesses to account where they fall short. It also sees the new regulatory regime as assisting the UK in its attempt to become a global hub for digital finance.

The FCA defines cryptoassets as ‘cryptographically secured digital representations of value or contractual rights that use some type of distributed ledger technology and can be transferred, stored or traded electronically.’

The FCA has issued a series of consultations – which closed in February – about its regulatory plans, and the UK has also outlined a prudential regime for cryptoasset companies. The FCA’s consultations covered key areas such as how cryptoassets should be listed and what companies must tell investors, as well as the compliance standards for exchanges to ensure trading is safe and reliable.

The FCA will also introduce measures to prevent insider trading and requirements for brokers and other middlemen to ensure they act responsibly. Crucially, the FCA wants cryptoasset companies to have in place the same kind of financial safeguards as traditional financial services so they’re better able to manage risk. Under the FCA’s roadmap, final rules are due to be published midway through 2026 and come into force in 2027.

The UK’s new rules will bring the country more in line with the US, which has already extended financial regulations to companies and products in the sector. However, closer alignment with the US puts the UK at odds with the EU, which has created sector-specific rules under its Markets in Crypto-Assets Regulation (MiCAR), which came into full effect at the end of 2024. While the EU rules have the benefit of being harmonised across the 27 Member State bloc, the UK hopes the integration of its cryptoasset rules with those of traditional financial services companies will provide an incentive for such businesses to locate to the country and develop deeper services more easily.

Andrea Huber, Co-Chair of the IBA Banking Regulation Subcommittee, says the UK’s approach ‘has real advantages, but also some predictable friction points.’ She believes that the UK choosing to deliberately carve out a distinct regulatory path for the cryptoasset sector, separate from both the EU and the US, ‘has merit’, but adds that ‘whether that strategy succeeds depends less on difference as such and more on how divergence is calibrated and managed.’

Switzerland, says Huber – who’s a partner in the Zurich office of law firm Pestalozzi – has long resisted ‘specific’ legislation as a starting point. Instead, the Swiss Financial Market Supervisory Authority applies existing financial market law where functions and risks justify it, and targeted adaptations where distributed ledger technology creates new risk mechanics – for example, relating to smart contracts. ‘The UK’s intent to regulate activities rather than labels is therefore conceptually aligned with Swiss thinking, even if the technical implementation will differ,’ she says. ‘That said, regulatory divergence carries certain systemic and legal risks, particularly for an industry that matured without rules.’

Huber says the UK is probably trying to chart a third way that’s more flexible than the EU, but more structured than the US. However, she adds that ‘the real danger is not divergence per se, but uncoordinated divergence in a borderless market.’ The cryptoasset sector doesn’t need ‘lighter rules than traditional finance,’ she says, ‘but it does need smarter, interoperable ones.’

Marc Mouton, a partner at law firm Arendt in Luxembourg, says it’ll be interesting to see if the UK follows the moves by some EU regulators to clamp down on third-country cryptoasset exchanges that have been able to exploit loopholes in MiCAR – primarily, the ability to reach EU clients via intermediaries that have cryptoasset service provider status and who provide brokerage services to clients in the bloc.

Ian O’Mara, a partner at law firm Matheson in Dublin, says divergence between the UK and the EU ‘is unsurprising’ as the cryptoasset regime will be one of the first regulatory frameworks that the UK ‘will devise post-Brexit from scratch’. He highlights that since MiCAR was only adopted in the EU in 2023, only a few years after Brexit, the UK ‘has had a completely blank slate to work with.’

He adds that the UK has had a ‘second-mover’ advantage in terms of assessing the strengths and weaknesses of the approaches taken by other major jurisdictions such as the EU, the US and Switzerland and being able to position its cryptoasset industry regulation differently. If the UK approach ends up being successful in both attracting reputable cryptoasset companies and safeguarding consumers, it might inform future reforms within the EU, says O’Mara.

However, he doesn’t believe that the UK’s approach will be light-touch or more willing to accept risky practices. ‘The UK has, and continues to have, a strong emphasis on consumer protection in financial services and for that reason we do not anticipate major divergence,’ he says.

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