What to expect from upcoming cryptoasset regulations

Cryptoassets and DLT have the potential to revolutionise how we interact with the digital world — but new technology brings new regulations and uncertainty. We explore what to expect in this evolving payments landscape, read on for more.

Bitcoin and gavel side by side.
Cryptoassets (aka cryptocurrencies) have been around for a while now, yet there are still many questions surrounding them. One of the most common questions is about the complexities of their regulation. Global governments are taking different approaches to regulating cryptoassets, and it can be difficult for businesses, institutions and individuals to keep track of all the changes. In this article, we'll take a look at some of the current regulations surrounding cryptoassets in the UK, as well as what to expect from upcoming regulations. We'll also explore how DANIEL is preparing for these new regulations.


Before exploring the UK’s Regulatory Framework, it's essential to understand some definitions. For example, the terms cryptoassets and distributed ledger technology (DLT) are often used interchangeably, leading to confusion. It's important to note that cryptoassets and DLT are not the same thing.


The Financial Conduct Authority (FCA) has opted to use the term cryptoassets rather than cryptocurrencies in order to capture the full range of tokens (units of value residing on their blockchains) currently available.

Their definition of cryptoassets is:

"Cryptographically secured digital representations of value or contractual rights that uses some type of distributed ledger technology and can be transferred, stored or traded electronically."[1]

There are four broad types of cryptoassets:

  • Exchange Tokens (i.e. virtual currencies or cryptocurrencies such as Bitcoin and Ether)
  • Security Tokens (these can be used as a means of investment or exchange)
  • Utility Tokens (these can be redeemed for specific access to specified products or services using a DLT platform)
  • Electronic money tokens (those which fall within the definition of e-money under the Electronic Money Regulations. "Broadly, digital payment instruments that store value, can be redeemed at par value, at any time and offer holders a direct claim on the issuer”[2] Depending on a stablecoin’s design, it could fit into this category.)

Distributed Ledger Technology

The FCA defines Distributed Ledger Technology as “a set of technological solutions that enables a single, sequenced, standardised and cryptographically secured record of activity to be safely distributed to, and acted on, by different participants."[3] Put simply, DLTs are decentralised digital ‘logbooks’ of a particular record (e.g. a transaction) managed by various participants rather than a central authority. These log books are protected by a cryptographic signature or key. Probably the most well-known type of DLT is blockchain. Due to the design of DLTs, they are considered to provide greater transparency and security, and once stored they become immutable.

Essentially, a DLT in the form of a blockchain is a platform that underpins a cryptoasset, although it has many other applications such as immutable and secure cross-border payments, smart contracts, and proof of identity.

Given the broad meaning and application of DLT technology, we have chosen to focus on blockchain given its use in cryptoassets in this article.


Another important concept to understand when talking about crypto regulations is stablecoins. Stablecoins are cryptoassets that aim to reduce the volatility associated with the value of a cryptoasset to that of the underlying asset (assuming there is a 1:1 ratio). They do this by maintaining their value relative to a specific stable asset like GBP, USD, or gold. The value of stablecoins however can still fluctuate in line with the value of the asset behind it. A prominent example of a stablecoin is USD Coin which is backed 1-to-1 by the US Dollar and has been verified by Circle, the company that “mints” the USD Coin stablecoin.

Current Regulations in the UK

Since March 2018, the UK has had a Cryptoassets Taskforce comprised of the Financial Conduct Authority (FCA), HM Treasury (HMT) and the Bank of England (BOE). The objective of the Taskforce is for these agencies to take a combined approach to the potential risks to the UK posed by cryptoassets and DLT and consider relevant policy responses.  

The Taskforce has recognised that DLT and certain types of cryptoassets have the potential to significantly benefit the financial and other sectors in instances such as providing a mechanism to facilitate cross-border payments. On this basis, all three agencies have given their support to the development of such technologies with a focus on managing associated risks.[4]

Current Framework

If a cryptoasset is within the regulatory parameters established by the Financial Services and Markets Act 2000 (FSMA) e.g., investments, the UK’s Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) e.g., a cryptoasset exchange or custody business, or payments regulation such as the Electronic Money Regulations 2011 (EMRs), e.g. E-Money tokens, it is subject to financial regulation by the FCA.

Since 10 January 2022, businesses wishing to provide cryptoasset activity within the definition of the MLRs must first be registered and approved by the FCA. This is, however, still only a ‘registration’ for the supervision of a company’s Anti-Money Laundering and Counter-Terrorist Financing controls rather than an ‘authorisation’ required to operate a business such as an E-Money or Payment Institution.

The FCA currently regulate Security and E-Money tokens and requires the registration and approval of companies involved in activities including Cryptoasset exchange provision (including Cryptoasset Automated Teller Machines (ATM), Peer to Peer Providers, Issuing new cryptoassets, e.g. Initial Coin Offering (ICO) or Initial Exchange Offerings) as well as Custodian Wallet Provision.

Despite the lower threshold of ‘registration’, the FCA have the power to approve or decline a company’s application to perform these activities in the UK. During this process, the FCA is able to scrutinise all aspects of an applicant's business to ensure a robust business model, security measures and controls to combat Money Laundering and Terrorist Financing risks are in place.

The FCA has approved 39 cryptoasset firms in the UK to date, with all firms being published in their Financial Services Register which is publicly available. They also publish a searchable list of firms and individuals that are not FCA authorised and have come to their attention, which is publicly available.

Regulations not yet in place in the UK

Currently, DLT is not regulated in the UK, likely because policymakers recognise it as a ledger of record rather than a financial service, although the FCA have recognised the potential benefits of this technology for some regulated markets. These benefits include the ability to exchange data faster and more securely, reduce costs and faster reconciliation by removing the need for particular intermediaries.

Regarding their approach, the FCA has said:

“We do not see a clear need to consider changes to our regulatory framework for DLT solutions to be implemented. Instead we want to explore emerging business models, and how their potential risks and opportunities operate in the context of our regulatory framework.”[5]  

Due to the cross-border nature of DLT technology, the FCA is also working with its overseas counterparts on collaborative initiatives and reports.

Stablecoins are not currently regulated in the UK, unless their design brings them into the definition of an e-money token.

Upcoming cryptoasset regulations in the UK

Prime Minister Rishi Sunak is a champion for the future of cryptoassest and DLT technology, having stated earlier this year “It’s my ambition to make the UK a global hub for cryptoasset technology” and he states the government is seeking to “help to ensure firms can invest, innovate and scale up in this country.”[6]

The measures will seek alignment and competition with more established markets such as the US and Europe.

Regulations we expect to see in the near future include

Cryptoassets have been included in the scope of the Financial Service and Markets Bill, currently in its report stage in Parliament. This is expected to be passed in early 2023.  

The Bill proposes to bring activities using stablecoins as a payment means within its scope in an attempt to make them a recognised payment method in the UK.

Prime Minister Sunak has also announced that the “UK will proactively explore the potentially transformative benefits of Distributed Ledger Technology (DLT) in UK financial markets, which enables data to be synchronized and shared in a decentralised way to potentially achieve greater efficiency, transparency and resilience.”[7]

There were further plans proposed relating to the Financial Promotion of cryptoassets (in particular risk warnings to protect consumers) and the development of a Financial Markets Infrastructure Sandbox to assist firms with experimentation and innovation.

The government has also announced it will initiate a research programme “to explore the feasibility and potential benefits of using DLT for sovereign debt instruments”.[8]

Earlier in the year, the FCA held two “policy-focused CryptoSprint events” to “seek industry views around the current market and the design of an appropriate regulatory regime.”[9] Following these events, the FCA have set up workstreams to expand on their understanding of future crypto requirements and standards in areas such as Environmental, Social and Governance (ESG) considerations, redress, market conduct, operational resilience, and insolvency.[10]

What is the impact for DANIEL?

DANIEL’s DLT payment rail technology should be minimally impacted, if at all, due to the current focus of both the government and the FCA on taking a consultative approach rather than proposed regulation in this area. DANIEL will use a multi-rail approach, which in addition to DLT will include traditional (e.g. SWIFT) and network (e.g. Visa Direct) rails. These traditional rails will of course not be impacted by this regulation as they are currently within the UK’s existing framework.

Given proposed regulatory changes are in their consultancy and reporting stages, it is difficult to know the exact requirements that firms will need to meet until the text of the Financial Service and Markets Bill has been agreed upon by both Houses of Parliament.

Based on the available information, the main impact for DANIEL will likely be that of the proposed stablecoin regulation. This is because DANIEL uses stablecoins to facilitate its blockchain payment rails.  

Whilst exact details are still unclear, indications are any proposed regulation will be governed by the existing payments regime such as the EMRs which once live, DANIEL must already adhere to for its accounts and payments products.

DANIEL is being proactive

DANIEL will always operate within established regulatory permissions, either under its own license or as an authorised representative under that of another authorised partner. DANIEL also has a dedicated Compliance function, which amongst other tasks, helps DANIEL navigate the regulatory landscape. This involves keeping up to date with regulatory change in order to be able to understand potential new requirements as soon as possible.

DANIEL also understands and encourages the need for continuous learning enabling staff to undertake activities such as industry events, FCA training events and being members of industry information-sharing groups.

The DANIEL tech team help all our staff understand the complex technology at the heart of our products. This enables us to have a greater understanding of which regulatory updates are applicable. This allows DANIEL to be well-prepared for any regulatory change.

Our team are monitoring the progress of the Financial Service and Markets Bill through Parliament and are looking forward to reading the finalised version.

In conclusion

Cryptoassets and DLT have the potential to revolutionise how we interact with the digital world. The UK’s regulatory landscape in these areas is almost entirely based on supervision under the Money Laundering Regulations. New regulations are on the horizon, with a focus on promoting the use and adoption of stablecoins.  This is exciting as it appears to be seeking to validate this technology as an alternative, mainstream payment solution.

Both the government and FCA have elected to take a consultative approach concerning DLT technology in lieu of proposing new regulations. This is encouraging as regulators need to provide a clear framework that allows innovation within this space while also protecting consumers. Seeking input from the industry directly is an important step in this process.

DANIEL is closely following these changes so we are well-positioned to comply with any new regulations that may come into effect. We're keeping our ears to the ground, stay tuned for updates.

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1 The FCA’s Cryptoassets: our work
2 HM Treasury Cryptoasset and Stablecoin consultation
3 FCA Discussion Paper on distributed ledger technology
4 Cryptoassets Taskforce: final report
5 DP17/3: Discussion Paper on distributed ledger technology
6 News story: Government sets out plan to make UK a global cryptoasset technology hub
7 News story: Government sets out plan to make UK a global cryptoasset technology hub
8 News story: Government sets out plan to make UK a global cryptoasset technology hub
9 FCA CryptoSprint outputs
10 FCA CryptoSprint outputs

First published
November 23, 2022
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