HM Treasury Crypto Policy and Regulations: What UK Firms Need to Know in 2025

The UK government has finally drawn a clear line in the sand for cryptocurrency businesses. As of April 29, 2025, HM Treasury released the draft Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025-the first comprehensive legal framework to bring crypto activities under the same regulatory umbrella as banks and investment firms. This isn’t just another consultation paper. It’s the final blueprint before law takes effect, and it changes everything for anyone operating in or serving the UK crypto market.

What’s Actually Regulated Now?

The new rules don’t cover every crypto activity. They focus on five specific actions that require FCA authorization:

• Operating a cryptoasset trading exchange
• Issuing qualifying stablecoins
• Dealing in qualifying cryptoassets (buying/selling on behalf of others)
• Providing custody services for cryptoassets
• Arranging transactions in qualifying cryptoassets

These aren’t new ideas. They mirror the EU’s MiCA rules, but they’re built on top of the UK’s existing financial laws. That means if you’re already regulated as a bank or broker, you’re not starting from scratch. You’re adding crypto to your license. But if you’re a startup running a crypto exchange from a garage in Brighton, you now need to prove you can meet the same capital, governance, and anti-fraud standards as Barclays or Goldman Sachs.

Stablecoins Are the Big Target

Not all crypto is treated the same. The rules single out qualifying stablecoins-digital tokens pegged to pounds, euros, or other fiat currencies-as high-risk. Why? Because they’re designed to be used like money. If a stablecoin issuer fails, people could lose access to their savings overnight.

Here’s the key detail: only UK-based issuers are directly regulated. If you’re a US company issuing a dollar-backed stablecoin and UK users buy it, you’re not required to get an FCA license. But if you’re based in London and issue the same thing? You’re in full regulatory sight. This territorial approach gives UK firms a competitive edge-while still protecting consumers who use foreign stablecoins through other safeguards.

DeFi Gets a Pass-For Now

One of the most surprising parts of the draft? Decentralized finance (DeFi) protocols aren’t regulated-at least not yet. The law explicitly excludes truly decentralized systems where no single entity controls the code or operations. If there’s no CEO, no headquarters, and no team you can sue, HM Treasury says it won’t try to regulate you.

But here’s the catch: the FCA gets to decide what “truly decentralized” means. If a project has a core team that updates the code, controls the treasury, or promotes the token, they could be classified as a regulated entity. This isn’t a loophole-it’s a test. Projects like Uniswap or Aave might be safe if they stay fully open-source and community-run. But if a startup launches a “DeFi platform” with a team, a website, and a marketing budget? They’re probably already on the FCA’s radar.

Who Has to Apply for Authorization?

If your business does any of the five regulated activities listed above, and you serve UK customers, you need to apply to the FCA. That includes:

• UK-based crypto exchanges like Coinbase UK or Kraken UK
• Stablecoin issuers like a London fintech launching a GBP-backed token
• Custody providers storing crypto for hedge funds or retail investors
• Brokers who buy or sell crypto on client demand
• Platforms that connect buyers and sellers of crypto (even if they don’t hold funds)

Non-UK firms are also caught if they actively target UK users. That means websites with GBP pricing, English-language support, or UK-focused advertising now fall under the rules. The FCA doesn’t care where you’re incorporated-it cares where your customers are.

What Does Authorization Actually Mean?

Getting FCA approval isn’t a formality. You’ll need to show:

• Enough capital to cover losses (minimum £100,000 for most firms)
• Robust systems to prevent money laundering and fraud
• Clear rules for handling client funds and assets
• Transparent disclosures about risks and fees
• A governance structure with qualified directors

It’s the same bar as for traditional financial firms. That’s intentional. HM Treasury doesn’t want crypto to be a Wild West. They want it to be a regulated financial market-just with digital assets.

Anti-Money Laundering Rules Are Tightening Too

On September 2, 2025, HM Treasury released draft amendments to the Money Laundering Regulations. These update how crypto firms handle customer checks, pooled accounts, and reporting. Key changes:

• More risk-based checks-high-value transactions get deeper scrutiny
• Stricter rules on pooled client accounts (no more mixing funds from different users)
• Trust registration requirements for crypto assets held in trust structures
• Improved data sharing between FCA and other regulators

This isn’t optional. Firms that fail these checks could face fines, suspension, or criminal prosecution. The FCA has already started monitoring suspicious activity linked to crypto mixing services and unlicensed exchanges.

What’s Coming Next?

The April 2025 draft isn’t the full picture. Two major pieces are still pending:

• Market abuse rules-to stop insider trading and price manipulation in crypto markets
• Admissions and disclosures-rules for how crypto tokens are listed and what information issuers must share

These are expected by late 2025 or early 2026. The FCA also plans to release detailed rulebooks and authorization guides in the coming months. Firms can’t wait until the last minute. The clock is ticking.

What Should Firms Do Now?

If you’re in the UK crypto space, here’s what to do:

1. Map your activities against the five regulated functions. Are you doing any of them?
2. Check if you serve UK customers-even if you’re based overseas.
3. Start preparing your FCA application. Gather financial records, compliance policies, and governance documents.
4. Review your DeFi setup. Is it truly decentralized, or could the FCA say you’re a regulated entity?
5. Update your AML procedures to match the new draft rules.

Smaller firms may struggle with the cost and complexity. But waiting isn’t an option. The FCA has already begun enforcement actions against unlicensed exchanges. The window for compliance is open-but it won’t stay open forever.

Why This Matters Beyond the UK

The UK’s approach is being watched globally. Unlike the US, which still has a patchwork of state and federal rules, or the EU, which took a one-size-fits-all route, the UK chose precision. They didn’t ban crypto. They didn’t ignore it. They built a system that fits within their existing financial infrastructure.

This could make London a magnet for compliant crypto firms looking to avoid the chaos in the US or the rigidness of MiCA. Stablecoin issuers, custody providers, and regulated exchanges may find the UK the most attractive jurisdiction in Europe. But only if they play by the new rules.

Final Takeaway

The era of crypto regulation in the UK is here. It’s not about stopping innovation. It’s about making sure innovation doesn’t come at the cost of consumer safety or financial stability. The rules are strict. The deadlines are real. And the FCA is watching.

If you’re running a crypto business in or targeting the UK, you have one choice: adapt or get left behind.