UK: Digital asset staking is not collective investment scheme

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The United Kingdom Treasury, the government department responsible for finance and economic policy, has amended finance laws to clarify that digital asset staking is not a collective investment scheme, thus allowing proof-of-stake (PoS) blockchains to avoid—for now—the more onerous regulatory requirements that come with that label.

In a January 8 order, the Treasury amended a section of the Financial Services and Markets Act 2000 (FSMA) related to group investments, adding that “arrangements for qualifying crypto asset staking do not amount to a collective investment scheme.”

It also clarified that “qualifying cryptoasset staking’ means the use of a qualifying cryptoasset in blockchain validation… or other similar technology.”

In the context of blockchain, “staking” is a process where digital asset holders lock up a portion of their assets to help validate transactions and secure a blockchain network. Blockchains using a proof-of-stake protocol, such as Ethereum and Solana, allow users to stake their native tokens in exchange for earning rewards, typically in the form of additional tokens.

There was previously a certain amount of ambiguity in the U.K. as to whether such proof-of-stake protocols could be classified as “collective investment schemes” and thus be subject to the heavier regulatory requirement of this investment category.

The U.K. defines a “collective investment scheme” under the FSMA as an arrangement enabling multiple investors to pool their funds, where the participants do not have day-to-day control, and the scheme involves property managed as a whole, with profits or income shared among investors. This includes products such as exchange-traded funds (ETFs) and investment funds.

Due to the perceived riskier nature of such products, they are subject to heavier regulation by the country’s finance sector watchdog, the Financial Conduct Authority (FCA).

Specifically, the FCA requires collective investment schemes to be authorized or recognized before being marketed to retail investors, mandates clear disclosure of investment risks and fees, and enforces strict operational and reporting standards to ensure investor protection and market integrity.

Wednesday’s clarification by the U.K. Treasury means proof-of-stake blockchain protocols and their users can breathe a sigh of relief, as they will not be obliged to comply with these obligations—at least for the moment.

The updated law will come into effect on January 31.

Stakers rejoice

The reaction to this update was swift and positive from certain interested industry players.

Bill Hughes, a lawyer and global regulatory matters director at Ethereum software development firm Consensys, welcomed the clarification as a step forward for the industry in the U.K., emphasizing that the country’s laws traditionally regulate collective investment schemes with a heavy-handed approach which could have stifled growth.

“This is a good development because the management and promotion of CIS [collective investment schemes] are heavily regulated,” Hughes posted to X on January 9.

“The way a blockchain works is NOT an investment scheme. It’s cybersecurity,” he added.

The move also aligns with the U.K.’s broader strategy of fostering innovation in the digital asset sector while attempting to maintain appropriate consumer and investor protection oversight. It also, perhaps, signals the first steps towards a long-mooted full regulatory regime for digital assets in the U.K.

UK progress toward digital asset framework

Last year, the U.K. government committed to having a draft of the digital asset regulatory framework ready by early 2025.

Speaking at the Tokenization Summit in London in November, Economic Secretary to the Treasury Tulip Siddiq confirmed that the new rules would include staking services, stablecoins, and digital assets generally, as reported by Bloomberg.

Siddiq also noted the government’s intention to clarify the staking rules, agreeing with local digital asset commentators pushing for staking not to be designated as a collective investment scheme.

“For me, it doesn’t make sense for staking services to have this treatment,” Siddiq said at the time. “The government intends to proceed with removing this legal uncertainty accordingly.”

Having already acted on this part of her promise, it may not be long before the U.K. follows through on the rest of the Treasury Secretary’s digital asset regulation pledges.

In December 2024, the FCA published a discussion paper on the future market abuse regime for crypto assets (MARC) and the digital asset admissions and disclosures regime (A&D), which together it described as “crucial to improving the integrity and cleanliness of our crypto markets, as well as helping people make informed financial decisions.”

A key feature of the A&D regime is that public offerings of digital assets will be banned, with only two exceptions, either via a regulated digital asset exchange or by qualified investors. This would put the responsibility on exchanges to perform sufficient due diligence on offerings and to have a process for rejecting listings for trading.

The FCA also proposed that certain firms, such as authorized digital asset trading platforms, “share information with each other to help stop suspected market abuse. This will reduce fraud and help promote good practices in the sector.”

The regulator said these proposals were aimed at improving regulatory clarity so that there are clear and consistent “rules of the game” for firms and consumers, as well as to implement controls and processes to bring about “fair and orderly” trading conditions and reduce the risks of money laundering and fraud.

Currently, U.K. digital asset regulation only extends to anti-money laundering (AML) and marketing rules. However, depending on the feedback to the FCA’s December discussion paper, it appears the U.K. could soon be ready to unveil a more comprehensive conduct framework.

Watch: Reggie Middleton on DeFi, booms/busts & crypto regulation