Global Cryptocurrency Regulations Vol. 5: United Kingdom

Summary

1. Implementation of Comprehensive Financial Regulations

The UK is set to introduce a regulatory framework by October 2027 that will treat cryptoassets on par with traditional finance. The new rules will mandate licensing regimes for exchanges, the segregation of client assets, and the strengthening of AML/CFT frameworks, aiming to close regulatory gaps and enhance market transparency and safety.

2. Strict Regulation of Political Donations

Stringent measures have been rolled out, including a temporary ban on political donations via cryptoassets and the introduction of criminal penalties for violators. Designed to eliminate the risk of foreign interference exploiting crypto's anonymity, these measures are drawing international attention as a potential model case for political finance oversight.

3. The Hurdle of Banking Service Restrictions (Debanking)

While the legal framework advances, financial institutions are increasingly restricting or denying crypto-related transactions and settlements—a trend known as "debanking." With many exchanges already reporting a rise in customer friction, this pushback forms a significant obstacle to the UK's ambition of establishing itself as a global crypto hub.

The United Kingdom is advancing the development of a regulatory framework that treats cryptocurrencies on par with traditional financial products, aiming for implementation by October 2027. Previously, UK cryptocurrency businesses could operate by merely meeting anti-money laundering requirements, but they were not subject to the comprehensive financial regulations imposed on banks and securities firms, leading to criticisms regarding insufficient consumer protection and market oversight.

Cryptocurrencies, characterized by high anonymity and rapid cross-border movement, have posed challenges for monitoring illicit funds and foreign interference under traditional frameworks. The upcoming regulatory shift is expected to enhance market transparency and likely result in the elimination of businesses that fail to comply with regulatory standards.

The UK Treasury plans to present the "Financial Services and Markets Act 2000 (Cryptocurrency) Regulations 2025" to Parliament in December 2025, indicating an intention to incorporate cryptocurrency-related businesses into the regulatory fold. This is expected to include operations of cryptocurrency exchanges, proprietary and agency trading, and custody services, with ongoing efforts to establish the necessary systems.

1. Clarification of the Legal Status of Cryptocurrencies

Under common law, assets have traditionally been classified as tangible items that can be physically possessed or intangible rights protected by litigation. This regulation aims to define certain assets related to cryptocurrencies as designated investments under the FSMA (Financial Services and Markets Act 2000), integrating them into the same legal framework as traditional financial products.

This will clarify the legal positioning of cryptocurrencies, which have been in a legal gray area, and is expected to enable consistent management by the FCA. Additionally, it will allow for swift and certain legal measures regarding asset freezing and recovery in the event of hacking, as well as the protection of customer assets in the event of exchange bankruptcies.

※2 Common Law: A legal system developed as case law in the royal courts after the establishment of the Norman dynasty in the mid-11th century in England, later adopted by the United States. It is currently used in former British Empire territories such as the UK, US, Canada, Australia, and India.

2. Registration Obligations for Exchanges and Custodians

Businesses providing services such as the buying, selling, and custody of cryptocurrencies are required to obtain authorization under the FSMA. In the UK, issues such as the entry of unregistered businesses, inadequate internal controls, and improper management of customer assets have become apparent, prompting calls for strengthened regulation of businesses.

This regulation positions cryptocurrency-related operations as regulated activities, establishing a framework where the FCA reviews and supervises management structures, governance, and risk management systems. Authorized businesses will be subject to ongoing supervision, promoting a disciplined market environment by excluding unqualified operators from the entry stage.

3. Segregation and Protection of Customer Assets

The regulation requires businesses to segregate customer assets from their own and establish appropriate custody systems. In the cryptocurrency sector, the risk of customer assets being compromised in the event of a business failure has been highlighted. This regulation clarifies asset ownership and management methods, ensuring the return of customer assets even in adverse situations.

This aligns with the EU's MiCA (Markets in Crypto-Assets Regulation), which also clarifies the segregation of customer assets and the custody obligations of custodians, ensuring regulatory consistency with a focus on user protection.

4. Strengthening AML/CFT Measures

One of the aims is to strengthen measures against money laundering and terrorist financing. In the UK, a registration system for cryptocurrency businesses has been operated under the "Money Laundering Regulations 2017," but this regulation integrates it into the financial regulatory framework.

Consequently, customer verification (KYC), transaction monitoring, and suspicious transaction reporting obligations will be strengthened, along with compliance with the travel rule for sender and receiver information during transfers. These measures will enhance the traceability of cryptocurrencies, which are highly anonymous and cross-border, enabling the identification of illicit fund transfer routes.

5. Establishment of Information Disclosure and Advertising Regulations

There is a high possibility that transparency and propriety in advertising and solicitation related to cryptocurrencies will be ensured. In the UK, cryptocurrencies are incorporated into the financial promotion regulations under the FSMA framework, requiring advertisements to be approved by FCA-authorized businesses.

Additionally, requirements include the explicit display of risk warnings, prohibition of misleading representations, and the introduction of a cooling-off period. Particularly for individual investors, clear warnings about price volatility and the potential for capital loss are required. This is expected to curb excessive speculative behavior among users.

6. Strengthening of Supervisory and Enforcement Framework

The supervisory and enforcement framework will be strengthened to ensure the effectiveness of regulations. In the UK, under the FSMA framework, the FCA conducts supervision through continuous monitoring, reporting collection, and exercising investigative powers over businesses.

Furthermore, corrective orders, business restrictions, and fines will be imposed on violators, along with measures such as the publication and exclusion of unauthorized businesses. For serious violations, criminal proceedings may also be pursued. This stringent supervisory framework could influence international regulatory standards and be positioned as a regulatory model in the global cryptocurrency market.