Christopher Woolard is Partner at EY and Chair of the EY Global Regulatory Network.

FCA announces new roadmap for 2025

In November, Tulip Siddiq, economic secretary to the Treasury, set out the UK government’s approach to regulating cryptoassets and the Financial Conduct Authority published its accompanying Crypto Roadmap. These announcements were made against a background of increased consumer awareness and investment in cryptoassets (around 7m UK adults own crypto), as well as broader industry engagement by the FCA.

Both the speech and roadmap provide welcome clarity for the year ahead. The government plans to engage firms on draft legal provisions for the cryptoasset regime as early as possible in 2025. The FCA has set out a phased approach, starting in Q4 2024 and continuing into 2026, with discussion papers, consultation papers and final policy statements leading to the regime’s launch in 2026.

Siddiq confirmed that the previous government’s proposals for the regulation of cryptoassets (published in October 2023) will be implemented in full, including the creation of new regulated activities for cryptoassets, such as operating a cryptoasset trading platform, as well as associated regimes for both admissions to trading and market abuse. Siddiq also confirmed the government will remove the legal uncertainty regarding staking and that such services should not be treated as collective investment schemes.

The big change to stablecoin regulation

The most significant change in direction by the new government is regarding fiat-backed stablecoins. Under the previous proposals, fiat-backed stablecoins were to be brought into scope of UK payments regulation, with two separate, but interlinked, regulatory regimes: one for the issuance and custody of stablecoins under the remit of the FCA and another for systemic payment systems using stablecoins, recognised by UK Treasury, under the remit of the Bank of England for prudential regulation and the FCA for conduct regulation. If designated by the Treasury, systemic payment systems could have also come within the remit of the Payment Systems Regulator.

There were concerns this approach it could have led to regulatory divergence and would have required significant changes to the business model of stablecoin issuers if they were initially regulated by the FCA but grew to become systemic. In particular, all backing assets would be held as central bank reserves and stablecoin issuers would not be permitted to generate revenue from those assets.

However, under the revised approach, the government does not intend to bring stablecoins into UK payments regulation at this time. It considers that such an approach would place additional regulatory burdens on certain stablecoin activities in a way that would not be proportionate based on the current use cases. The government does intend to proceed with the new regulated activities for stablecoins, which will be implemented to the same timetable as the rest of the regulatory regime for cryptoassets (as shown by the FCA roadmap), rather than following the previous two-phased approach.

What does this mean for the UK stablecoin sector?

The new policy regime will present opportunities for firms looking to issue sterling-backed stablecoins.

However, it’s clear the industry will need to understand the implications of the different discussion and consultation papers for their business models, as well as formulating responses to help influence policy that maximises opportunities and minimises potential disruptions or risks. It will be equally important to ensure firms have the relevant authorisation plans and any ‘no regret’ actions they could take next year, ensure appropriate risk and control environments (especially anti-money laundering and consumer duty), and consider the business strategy and go-to-market opportunities.