Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2025

Considered in Grand Committee

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That the Grand Committee do consider the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2025.

My Lords, financial services are a key driver of growth in the UK. Embracing innovation is essential to sustaining the UK’s position as a leading global financial centre. As noble Lords will be aware, crypto assets’ usage has grown rapidly in recent years, and crypto assets are increasingly intertwined with traditional financial services. It is important, therefore, that the UK has a clear, proportionate and robust regulatory framework to oversee this emerging market.

This instrument establishes a comprehensive regime for crypto assets within the Financial Services and Markets Act architecture, ensuring that crypto assets are subject to regulations consistent with the framework that applies to other financial services. Taken together with detailed rules being developed by the Financial Conduct Authority, this framework will strengthen consumer protection, help tackle market abuse and provide the certainty that firms need to invest and grow in the UK.

There are already laws in place focused on addressing the most immediate risks from crypto assets, including anti-money laundering requirements and financial promotion rules. However, most crypto asset activities have not, to date, been subject to broader financial service regulations, including matters such as conduct and prudential requirements. Stakeholders and consumers have been calling on the Government to deliver a clear and comprehensive regime for crypto assets. The Treasury consulted on this regime in 2023, and in October 2024 the Government committed to implementing a regime largely in line with those proposals. The instrument before the Committee delivers on that commitment.

Specifically, the regulations would amend the 2001 regulated activities order to define crypto assets that would be within the scope of the regime, termed “qualifying crypto assets”, and to specify the new activities that will be regulated. Firms seeking to carry on those activities in the UK or deal with UK customers will be required to obtain authorisation from the FCA and comply with its rules, or risk committing a criminal offence. The new regulated activities are: issuing qualifying stablecoin in the UK; safeguarding the qualifying crypto assets and relevant specified investment crypto assets; operating a qualifying crypto asset trading platform; dealing in qualifying crypto assets as principal or agent; or arranging deals in qualifying crypto assets and qualifying crypto asset staking.

The instrument also uses the new designated activities regime to establish frameworks for public offers of qualifying crypto assets and their admission to trading on relevant platforms, alongside a market abuse regime tailored to crypto assets. Public offers of qualifying crypto assets will be restricted unless certain conditions are met. Firms will be required to publish disclosure documents so that investors have the necessary information when they are considering purchasing crypto assets, with clear rules around liability and compensation where information is untrue or misleading.

My Lords, it is a pleasure to take part in this debate on these regulations in Grand Committee. In doing so, I declare my interests, as set out in the register: as non-executive director of Avalanche (BVI) Inc and the Avalanche Foundation, a layer 1 blockchain protocol; and as adviser to Simmons and Simmons LLP.

I thank the Minister for the way that he introduced these regulations. They are a good thing and people have had time to consider them. They set out the Government’s position and ambition when it comes to crypto assets. We should all welcome this; there is an extraordinary opportunity for the UK when it comes to crypto assets, broader digital assets, tokenisation and broader allied technologies. We could take a stat from any of the main consultancies; all we need to know is that this is material to the UK economy and measurable in the billions.

What does this statutory instrument do to help us towards that objective? First, we should probably take a moment to slay two myths that dog this area and the broader technology space. The first is that you can have either regulation or innovation, not both. I believe that the Government’s approach to crypto assets and broader digital assets proves that it is possible to regulate in a way that enables innovation, proper regulation and the necessary consumer protection. We saw similar approaches with the fintech regulatory sandbox in 2016, the market intervention from the CMA with open banking and, decades ago, the approach that the UK Government took to the mobile telephony sector. We know how to do what I describe as right-sized regulation.

The second myth is that we cannot possibly legislate in time for these new technologies and financial instruments. If we look at just two recent examples—the Electronic Trade Documents Act and the Property (Digital Assets etc) Act—we can see clear, focused, specific legislation passed in good time that is already having a positive impact on our economy and businesses and for individuals right across the UK.

My Lords, I confess that, when tried to work my way through this statutory instrument, I felt incredibly inadequate. I cannot pretend super expertise on crypto assets and stable coins. Most of the information that comes my way is, frankly, from the industry lobbying for the maximum amount of scope, along with assurances that this is just a much more efficient plumbing of the payment system—nothing troubling here, just an opportunity to enhance the economy.

I realise that a regulatory framework is necessary, as crypto has become mainstream and is no longer fringe. While I do not oppose the SI, I retain quite a degree of uncertainty. I start by picking up the issue of stablecoin. I know Chris, or the noble Lord, Lord Holmes, really well—I apologise for almost forgetting his name; I have moments of holes in the brain that I suspect come with age—but I question the assertion that stablecoin is essentially just fiat currency in another form. I know some of the stablecoin companies such as Tether argue that basically one Tether equals $1 in the form of treasuries. I am also clear that much of this is opaque. Those who I understand see the accounts of some of these firms say that, if stablecoins were really only matched one to one with a fiat currency, their earnings would be no more than the return you would get—if it was, for example, a dollar stablecoin—on US treasuries. That does not square with the earnings that they either report or promote as part of their future. There is certainly something opaque about stablecoin. We are much safer if we continue to regard this as a subset of crypto and look at it carefully before we give it any specialist position.

I understand the need for these regulations, but I am terribly conscious that the Government’s thinking in shaping all this has been much impacted by its membership of the joint UK-US Transatlantic Task Force for Markets of the Future. That has been guided and driven by the Trump Administration’s desire to use financial instruments as a means of extraterritorial control. We see this most obviously with trade tariffs—that is where Trump’s main speeches are and those are the instruments that he talks about. I understand that anybody who was at Davos and spent five minutes with US Treasury Secretary Bessent would have quickly understood that crypto and stablecoin are indeed instruments that, in the same way, offer great potential to advance US economic interests globally and for forms of what I think Mark Carney would probably have called financial coercion.

Indeed, within the US Treasury, the past few months have seen a significant strengthening of OFAC—the Office of Foreign Assets Control. This is the area to which it has turned its attention; I think that it would say to me, quite openly, that both crypto and stablecoin are very much part of that strategy. I am not sure that we are on to that or that we are recognising it. That is embedded in the thought process behind the statutory instrument.

I am also conscious that the Government are driven by this concern for immediate growth in the financial services sector. I understand that—we all want to see that sector strengthen and grow—but that has made it very susceptible to any blandishment that includes “innovation”. We have heard that word from the noble Lord, Lord Holmes, today.

I wish that, in the Explanatory Memorandum—and, certainly, in our discussions around this—we would have a much more explicit discussion of the risks. For example, although I take some comfort from the provisions in this SI, which limit public offerings of crypto assets, the language of the SI seems to offer the regulator huge scope and unaccountable discretion, so that what we think is a fairly limited set of permissions, under this statutory instrument, could be made much broader without any parliamentary intervention or any accountability to Parliament.

I am also concerned that the Government’s guiding philosophy—we heard this phrase used in some form or other by the Minister, but it is also in the Explanatory Memorandum—is

“same risk, same regulatory outcome”.

That is misleading. The risks are not the same; this is not just about using different pipes for the plumbing. The financial mechanisms in cross-border trade using dollar stablecoin, which is a good example, are far more under US Treasury control than a trade made in US dollar-denominated assets held beyond the reach of the Federal Reserve, which is where most of the dollars outside the US currently sit. I see no recognition in the SI of that fundamental difference between a dollar stablecoin used for cross-border transactions, which can be subject to levers pulled by the US Treasury, versus trade that can take place in dollars without any reference to the US Treasury at all.

Until this statutory instrument, the focus of the regulation of crypto assets—the Minister was very clear about this—has been on anti-money laundering, against financial crime and against false prospectuses. Can the Government give us some assurance that none of the current protections—many of us already regard them as very weak, because the London laundromat is churning away quite happily despite all the anti-money laundering provisions—will be weakened from where they are today, at least? We all know that part of the reason why Russia is evading sanctions so successfully is that it is basically operating in the crypto world. That translates to fiat in places—many people believe that those places include Switzerland—and ends up in the London market. Any further weakening of the regime that attempts to contain that would, I think, be extremely worrying.

The EU has taken OFAC’s moves to use crypto as a tool of financial coercion far more seriously than the UK has. As everyone will know, the EU is preparing a digital euro to go live in 2029, as its response to this situation. Have the Government engaged with the EU to make sure that our rules enable the UK economy to benefit from that digital euro when it appears or are they still very focused on the US arena and, in essence, a US-defined crypto and stable sector?

I will talk lastly about individuals and small businesses. Individuals have, to date, received a clear message that you can put your money into crypto—bitcoin is a good example—but it is not regulated, so you are genuinely at risk. The message that will go out is that this is regulated now. I am concerned that this is bonus day for scammers and that they now have a mechanism whereby they can convince many more people that this is a safe and approved investment that is being offered to them on the system. Can the Minister comment on that? Are there strategies in place to make sure that people understand that these regulations do not mean that anything they see is an approved investment?

I always accept that the FCA takes seriously the protection of individuals, ordinary consumers and micro-businesses. It is not always that effective, but that is its focus. However, the regulatory parameter means that the FCA takes no part in protecting small businesses. With so many small businesses on their knees and open to tempting ways to obtain money for survival, what in this SI provides small businesses with any meaningful protection? Are we again constrained by the regulatory parameter that determines the room and scope of the FCA? Otherwise, the message of caveat emptor needs to be sent out very powerfully to small businesses, because you can see how many might become susceptible to the opportunities that are offered to them now that this becomes a regulated product, if they do not realise that this does not apply to anything sold to them.