UK drafts rules for digital assets, aligns with US approach

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The United Kingdom Treasury published draft digital asset regulation and indicated that it plans to work with the United States to support innovation across the digital asset industry, Chancellor of the Exchequer Rachel Reeves said on April 29.

“Through our Plan for Change, we are making Britain the best place in the world to innovate — and the safest place for consumers,” said Reeves in an April 29 statement. “Robust rules around crypto will boost investor confidence, support the growth of Fintech and protect people across the UK.”

The U.K. Treasury’s comments came after Reeves recently met with U.S. Treasury Secretary Scott Bessent in Washington, D.C., where, according to reports, they discussed collaboration around digital assets regulation.

The Chancellor also said that the U.K. and U.S. will use their upcoming joint ‘Financial Regulatory Working Group’ to “continue engagement to support the use and responsible growth of digital assets.”

The U.K. Government’s plans to align with U.S. digital asset policy were revealed at a major summit in London to mark UK Fintech Week, where Reeves also announced that the Treasury had published draft legislation for regulating the industry.

Under the new draft rules, digital asset exchanges, dealers and agents would be brought under the U.K.’s financial services regulatory regime, and digital asset firms with U.K. customers would have to meet clear standards on transparency, consumer protection and operational resilience—“just like firms in traditional finance,” said the Treasury.

It added, “Today’s announcement sends a clear signal: Britain is open for business — but closed to fraud, abuse, and instability.”

Thus far, the U.K. has taken a more cautious wait-and-see approach to digital asset regulation, introducing piecemeal rules for the sector, including those related to financial promotions, banking, and property law.

On the global regulatory spectrum, from U.S.’s free-for-all—or, depending on who you ask, regulatory quagmire—to the European Union’s comprehensive, tailored Markets in Crypto Assets (MiCA) regulatory framework, the U.K. has tended to veer closer to the former.

The new draft regulations, announced on Tuesday, would define digital assets and extend existing financial regulation to companies involved in them, further aligning the U.K. with the U.S. approach over that of the EU.

Stablecoins have been at the top of many regulatory agendas in recent months, in the U.S. in particular, with several new bills currently making their way through Congress and hopes high that legislation will be passed within the next couple of months.

The highlight of the U.K. Treasury’s draft rules regarding stablecoins was that issuers would be subject to regulation only if based in the country.

The government said it aimed to finalize the new legislation by the end of the year and that the rules would build on initial Treasury proposals outlined in a February 2023 consultation on the Future Regulatory Regime for Cryptoassets.

U.K.’s current regulatory landscape

In June 2023, the U.K. parliament passed the Financial Services and Markets Act (FSMA) 2023, which allowed for stablecoins and digital assets to be treated, for the first time, as regulated activities in the country.

While this laid the foundations for creating a regulatory framework, it did not constitute a full regulatory regime in and of itself. It did, however, come with a couple of substantial changes for the digital asset sector in the U.K.

Financial promotions

Specifically, under the new regime, any promotion of digital asset products or services henceforth needed to attach a ‘clear warning,’ and firms marketing digital assets to U.K. consumers must introduce a 24-hour cooling-off period for first-time investors.

It also instituted just four lawful routes firms could take to communicate digital asset promotions in the U.K., namely: the promotion could be communicated by an “authorized person,” as defined by the Financial Conduct Authority (FCA); an unauthorized person could communicate a promotion that had been approved by an authorized person; the promotion could be communicated by a digital asset business registered with the FCA under the Money Laundering, Terrorist Financing, and Transfer of Funds Regulations 2017 (MLRs); or the promotion could be communicated if it met the conditions of an exemption in the Financial Promotion Order.

Promotions not using one of these legal routes would be considered in breach of the new rules and thus “a criminal offence punishable by up to 2 years imprisonment, an unlimited fine, or both.”

Those who fell foul of the rules were also added to a warning list, which contains firms and individuals that the FCA has identified as potentially operating without its authorization and supervision or that it has concerns about for other reasons.

The U.K. announced the new digital asset promotions rules in June 2023, which came into force on October 8 of that year. During the first year of the financial promotion regime, the FCA took down over 900 “crypto-related scam websites” and issued 17,000 customer alerts.

The financial promotions regime was the most impactful change to come with the passage of the FSMA, and it was not met with universal approval from certain sectors of the industry, some of whom viewed the process of becoming an “authorized person” or getting one to approve your promotion, as an onerous barrier to entry—and, consequently, a firm that cannot promote its activity has a natural competitive disadvantage.

The other significant development in U.K. digital asset law came in September of last year when the House of Commons—the lower chamber of U.K. parliament—introduced a bill allowing digital assets to be considered property under the law.

Digital assets as property

In July 2024, the U.K. Law Commission—a statutory independent body that keeps the law of England and Wales under review and recommends reform—published a supplemental “final report” highlighting the inadequacy of the current categorization of personal property to account for digital assets, and in August followed this up with a report advocating for legal reforms to address it.

The problem, as the Law Commission saw it, was that the laws of England and Wales have only two categories of personal property: ‘things in possession’, i.e., tangible property; and ‘things in action’, i.e., intangible property such as debts or rights.

This puts digital assets in somewhat of a grey area, as they can possess both qualities or neither, resulting in confusion and hindering dispute resolution in court proceedings.

The Law Commission proposed introducing a “third category” to ensure that property rights related to digital assets are clear and enforceable. To achieve this, it recommended a ‘Property Bill‘ that would clarify that “a thing (including a thing that is digital or electronic in nature) is not prevented from being the object of personal property rights merely because it is neither— (a) a thing in possession, nor (b) a thing in action.”

This bill would allow digital assets to be considered property, whether or not they fit into either of the two existing categories, but would leave it to “common law development”—i.e., the courts—to develop the third category for digital assets.

In September, the U.K. government took up the recommendation, introducing a bill to create a new category of personal property for digital assets and non-fungible tokens (NFTs).

The so-called “Property (Digital Assets, etc) Bill” now sits in the House of Lords—the upper chamber of the U.K. parliament—where possible amendments are being debated, but with the backing of the House of Commons and Law Commission, it will almost certainly be passed into law.

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