Key Takeaways
- The Labour government has signalled its intent to integrate crypto into the U.K.’s financial system through clear, structured regulation.
- By learning from the EU’s MiCA and U.S. initiatives, the U.K. can design a balanced framework that protects consumers without stifling innovation, positioning itself as a competitive global crypto hub.
- Success will depend on effective implementation and international cooperation.
2025 has the potential to be a pivotal year for the U.K.’s cryptoasset industry.
Rachel Reeves recently delivered her second annual Mansion House briefing, detailing her vision for enhancing the U.K. financial sector’s competitiveness and positioning the U.K. to take the lead on digital assets and innovation.
Rishi Sunak’s Conservative government hoped the U.K. would become a ‘crypto hub’, but a lack of regulatory clarity and a general perception of crypto-unfriendliness has stifled innovation.
Nevertheless, with the Chancellor’s speech, coupled with the recent announcement of a comprehensive draft framework, Keir Starmer’s Labour government has sent a clear signal of its intent to integrate the crypto industry into capital markets, with clearly defined rules.
Still, clear legislation alone won’t make the U.K. a crypto hub, as the real test lies in how these rules are enacted. Beyond regulations, the government needs to carefully consider conditions that will truly make the U.K. an attractive jurisdiction for digital assets in the long term.
Second-Mover Advantage
With the EU among the first to introduce a crypto regulatory framework in the form of the Markets in Crypto-Assets Regulation (‘MiCA’), and the U.S. making strides to regulate stablecoins through the GENIUS Act, the U.K. government has the benefit of observing global precedents.
In recent years, some have argued that overly stringent regulations have stifled innovation and growth within the U.K.’s crypto space.
Therefore, it would be appropriate to deliver a ‘middle ground’ framework that would protect U.K. consumers while avoiding creating a hostile environment for the industry.
Bridging International Frameworks
The U.K.’s Draft SI covers many bases. Firstly, it provides much-needed clarity on regulations surrounding custody, with segregation requirements looking similar to those of custodians of traditional financial assets.
Beyond this, staking rules have been outlined, something that few jurisdictions have managed to achieve.
Lastly, the rules set out have the capacity to allow for flexible branch-and-subsidiary models, which global CATPs (cryptoasset trading platforms) might use to achieve a presence in the U.K. through a single license.
This last component is critical, as it would permit overseas firms to operate in the U.K. without being subject to onerous requirements. It encourages global investment capital to enter the country, which may otherwise have looked elsewhere.
A CATP license (similar to Europe’s CASP license) with passporting rights may indeed become something of a badge of honour in the crypto landscape, signaling both robust regulatory compliance, and an open door to international business.
By attempting to find a means of allowing non-U.K. entities to operate more easily in the country, Britain sends a message: Crypto is welcome here.
Creating Informed Regulation
Crypto complicates the traditional ruleset of financial oversight. Given the fast-paced and continual nature of technological advancements, the crypto sector demands increased due diligence and rigorous auditing.
It’s therefore vital that regulators take on specialists with knowledge of the sector to assist in effectively implementing the regulations.
More frequent engagement with U.K.-based crypto firms like Gemini, as well as with academia, will be essential to shaping this effectively.
Providing both detailed handbook and non-handbook guidance will help ensure firms understand the regulatory boundaries.
Similarly, ensuring that all relevant sectors are represented during decision-making, including trade bodies, the Treasury, the FCA, and the Department for Business and Trade, will balance innovation with caution.
Additional resources could be applied to support regulating the space in several ways, including implementing streamlined visa routes for specialized regulatory talent in government.
Additionally, collaboration with overseas regulators, including those in the U.S., could prove highly beneficial.
Collaboration With U.S. Regulators
In April, the Chancellor revealed that the government’s draft regulations are more closely aligned with the U.S. than the EU. This presents an immense opportunity for global collaboration with a pro-crypto U.S.
Administration and the largest financial market in the world.
This also makes the U.K. far more appealing for U.S. crypto firms to invest and boost liquidity. Test environments also allow for much-needed experimentation, and more importantly, help foster innovation in the space.
In addition to the U.K.’s existing Digital Securities Sandbox, the government has proposed a regulatory sandbox with the U.S. to create a controlled environment for regulatory innovation.
Testing what works and what doesn’t will help refine the government’s approach and develop a broader understanding of what these companies need in order to thrive.
Making the Most of the Opportunity
With nearly a quarter of U.K. citizens now investing in crypto, the U.K. has the opportunity to utilize its second-mover advantage while maintaining a competitive pace.
This opportunity will not last forever, with other jurisdictions including Singapore and the U.S. racing to bolster their regulatory regimes.
Beyond regulation, the U.K. could entice potential business by providing favorable tax conditions, presenting a competitive edge over other jurisdictions.
Innovation should be fostered, rather than met with hostility, and a holistic approach must be taken to make the U.K. an attractive place to do business.
For example, a gradual and risk-based authorisation framework could avoid falling into a one-size-fits-all strategy and encourage new business at various levels.
Another strategy might be to avoid stifling the DeFi sector and employ a principle-based framework through mandatory smart contract audits and code review. This would allow these businesses flexibility while providing them a platform to operate.
Crypto businesses are seeking jurisdictions that truly understand the industry, and approaches like these could encourage them to establish the U.K. as their base of operations.
Second-Mover Advantage
Suppose the U.K. swiftly finalizes its draft legislation while learning from previous regulations. In that case, it has a significant opportunity to carve out an essential role in regulating the global crypto landscape.
The country has the ability not just to emulate the implementations of other regions, but to set standards for other jurisdictions to follow. This second-mover advantage is critical for the country’s success.
If industry feedback is incorporated, favorable taxation is considered, and improved market access and perception are considered, Britain can emerge as a leader in this exciting and burgeoning crypto industry.
The views, thoughts, and opinions expressed in the article belong solely to the author, and not necessarily to CCN, its management, employees, or affiliates. This content is for informational purposes only and should not be considered professional advice.
About the Author
Azariah Nukajam is Head of Regulation and Compliance at Gemini, where she oversees the UK VASP and EMI businesses' compliance operations. Prior to joining Gemini, Azariah spent 2.5 years at boutique consultancy Fscom where she was an Associate Director, and 3.5 years at Kroll, where she was a Vice President on the Regulatory Consulting team.
