Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2025

Wednesday 28th January 2026 Grand Committee

Considered in Grand Committee

17:08

Moved by

[Lord Wilson of Sedgefield]

That the Grand Committee do consider the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2025.

Relevant document: 47th Report from the Secondary Legislation Scrutiny Committee

[Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)]

My Lords, financial services are a key driver of growth in the UK. Embracing innovation is essential to sustaining the UK’s position as a leading global financial centre. As noble Lords will be aware, crypto assets’ usage has grown rapidly in recent years, and crypto assets are increasingly intertwined with traditional financial services. It is important, therefore, that the UK has a clear, proportionate and robust regulatory framework to oversee this emerging market.

This instrument establishes a comprehensive regime for crypto assets within the Financial Services and Markets Act architecture, ensuring that crypto assets are subject to regulations consistent with the framework that applies to other financial services. Taken together with detailed rules being developed by the Financial Conduct Authority, this framework will strengthen consumer protection, help tackle market abuse and provide the certainty that firms need to invest and grow in the UK.

There are already laws in place focused on addressing the most immediate risks from crypto assets, including anti-money laundering requirements and financial promotion rules. However, most crypto asset activities have not, to date, been subject to broader financial service regulations, including matters such as conduct and prudential requirements. Stakeholders and consumers have been calling on the Government to deliver a clear and comprehensive regime for crypto assets. The Treasury consulted on this regime in 2023, and in October 2024 the Government committed to implementing a regime largely in line with those proposals. The instrument before the Committee delivers on that commitment.

Specifically, the regulations would amend the 2001 regulated activities order to define crypto assets that would be within the scope of the regime, termed “qualifying crypto assets”, and to specify the new activities that will be regulated. Firms seeking to carry on those activities in the UK or deal with UK customers will be required to obtain authorisation from the FCA and comply with its rules, or risk committing a criminal offence. The new regulated activities are: issuing qualifying stablecoin in the UK; safeguarding the qualifying crypto assets and relevant specified investment crypto assets; operating a qualifying crypto asset trading platform; dealing in qualifying crypto assets as principal or agent; or arranging deals in qualifying crypto assets and qualifying crypto asset staking.

The instrument also uses the new designated activities regime to establish frameworks for public offers of qualifying crypto assets and their admission to trading on relevant platforms, alongside a market abuse regime tailored to crypto assets. Public offers of qualifying crypto assets will be restricted unless certain conditions are met. Firms will be required to publish disclosure documents so that investors have the necessary information when they are considering purchasing crypto assets, with clear rules around liability and compensation where information is untrue or misleading.

The market abuse provisions define “inside information” and prohibit insider dealing—the unlawful disclosure of inside information and market manipulation —thereby supporting market integrity and protecting UK consumers. The provisions would take effect from 25 October 2027. This timetable allows the FCA to finalise its detailed rules and guidance this year, and it gives firms time to familiarise themselves with the new rules and seek authorisation ahead of the enforcement date.

Noble Lords will know that the Secondary Legislation Scrutiny Committee raised this measure as an instrument of interest in its 47th report, published on 15 January. I am grateful for the consideration the committee has given this legislation. It noted some important points that I would like to reiterate here. First, on the costs to firms of the new regulations, the Government have published the de minimis assessment of the impact of the changes. The Government have taken a proportionate approach to the crypto asset regulatory regime to help manage the impact on firms. On FCA resourcing, the regulator confirmed that it has been increasing resources over the last few years to ensure that it has the right regulatory, technical and industry expertise needed to deliver the regime. Finally, the committee asked about the implementation timeline. As I said, the regime will be in force in October 2027, and the FCA expects the application period to be open later this year.

These regulations will raise standards, strengthen consumer protection, help prevent market abuse and support responsible growth in the UK’s digital asset sector. I beg to move.

17:15

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to take part in this debate on these regulations in Grand Committee. In doing so, I declare my interests, as set out in the register: as non-executive director of Avalanche (BVI) Inc and the Avalanche Foundation, a layer 1 blockchain protocol; and as adviser to Simmons and Simmons LLP.

I thank the Minister for the way that he introduced these regulations. They are a good thing and people have had time to consider them. They set out the Government’s position and ambition when it comes to crypto assets. We should all welcome this; there is an extraordinary opportunity for the UK when it comes to crypto assets, broader digital assets, tokenisation and broader allied technologies. We could take a stat from any of the main consultancies; all we need to know is that this is material to the UK economy and measurable in the billions.

What does this statutory instrument do to help us towards that objective? First, we should probably take a moment to slay two myths that dog this area and the broader technology space. The first is that you can have either regulation or innovation, not both. I believe that the Government’s approach to crypto assets and broader digital assets proves that it is possible to regulate in a way that enables innovation, proper regulation and the necessary consumer protection. We saw similar approaches with the fintech regulatory sandbox in 2016, the market intervention from the CMA with open banking and, decades ago, the approach that the UK Government took to the mobile telephony sector. We know how to do what I describe as right-sized regulation.

The second myth is that we cannot possibly legislate in time for these new technologies and financial instruments. If we look at just two recent examples—the Electronic Trade Documents Act and the Property (Digital Assets etc) Act—we can see clear, focused, specific legislation passed in good time that is already having a positive impact on our economy and businesses and for individuals right across the UK.

It should also be noted that we are not behind the curve when we compare other jurisdictions. Certainly the GENIUS Act in the United States has perhaps had more column inches and broadcast minutes devoted to it but, when we consider the timeline for the implementation of that Act and look at what is currently happening with MiCA in the EU, the UK should not feel behind the curve in any sense.

I welcome these regulations, but with one significant caveat—one wrinkle that I believe needs to be addressed. It is simply that the regulations as currently drafted roll together stablecoins and other crypto assets. For example, unbacked bitcoin is treated in the same way as fiat-backed stablecoin. I cannot believe that this is the intention of the Government in drafting these regulations, because unbacked bitcoin and fiat-backed stablecoin operate in very different ways and have extraordinarily different purposes. Crucially, the difference can be set out just in understanding the difference between something that is backed and something that is completely unbacked. Bitcoin could largely be considered a speculative investment; stablecoin is more of a payment methodology—money, if you will. I ask the Minister whether that is the intention of the regulations, whether that follows from the stated policy around crypto assets and stablecoins and whether a change to the regulations is not required at this stage to perfect what I would argue is a significant problem.

I do not believe it can be right that fiat-backed stablecoins are treated as investments—they are not investments. If they are, there is a clear and present threat to the burgeoning stablecoin industry in the UK, which, if these regulations go through, may be stifled before it has had time to even get thoroughly under way. To be clear, stablecoins and other potential payment methods, such as central bank digital currencies, are the cash leg to these new digital markets and digital economy. If we stifle that at this stage, we will be killing off all those broader possibilities from such digital markets.

Take, for example, somebody who wished to use fiat-backed stablecoins to make a payment, engage in FX, or be involved in a money market fund. They would be using a fiat-backed stablecoin rather than fiat itself. Can it be right that the regulations as currently drafted would treat that person differently just by dint of them using fiat-backed stablecoin rather than cash? It would necessitate FCA licensing, so an increased regulatory burden for doing largely the same thing, and, in reality, that licence would not be sought—the industry would simply choose not to use that stablecoin methodology, and thus it would be killed off at that stage.

I believe a solution exists, and it is relatively straightforward at this stage: to exclude qualifying stablecoins from the definition of qualifying crypto assets. It would not be problematic. It would fit very well with Deputy Governor Sarah Breeden’s speech on a multi-money universe. Consumer protection would be unaffected, because of the issuing provisions already set out. The safeguarding duties would kick in and have a positive impact. I do not believe any changes would be needed to the staking provisions. Crucially, it would leave policy in the correct place to enable stablecoins to be integrated into the upcoming overhaul of payment regulations. I argue that payment regulations is the correct place for stablecoins, as they are, in essence, money. Another solution could be to look at how the current definitions are set out around dealing and arranging. It is more complex, but equally doable. Two options exist to setting right this wrinkle in the regulations.

It is not that this is a minor drafting point. There will be clear, present and immediate harm to our industry and economy if the regulations are passed in their current form. This is not just a matter of theory. We can see this already in the EU, where the double regulation of stablecoins—MTS in that jurisdiction—is currently causing harm, hampering the development of that industry across the EU, and is already subject to review. We can avoid that issue before it becomes a problem if we make this change to the regulations.

The policy note that accompanied the regulations when they were first set out said that this is a draft SI and should not be considered final. Does the Minister agree that that continues to be the situation and that we can make these changes to the regulations? There is a great deal at stake for the UK here. This is such an important piece of the UK’s global aspiration when it comes to crypto assets, digital assets, tokenisation, and the whole digital market and economy transformation that we all want to bring about for the benefit of the citizen and the consumer, companies and our country. The opportunity exists. We cannot allow it to founder for want of this simple change.

The Government’s growth agenda can be effectively enabled through stablecoins and broader digital assets. Similarly, does the Minister agree that there is a real opportunity for the effective and efficient offshoring of government debt through the effective deployment of stablecoins? It is a real opportunity for the UK economy. If you want a use case to prove this point, just look at how USDC is currently operating.

At stake is a growth matter and a global economic matter. This is a way to effectively change how government debt is treated in a material way for the economy. More broadly, in considering the whole issue around crypto and digital assets, having even greater clarity from the Government, beyond growth and innovation, and making a clear statement as to what we want as the UK—what position we want to play when it comes to cryptocurrencies, assets, digital assets and stablecoins, sharpening the arrowhead of the Government’s mission—would be incredibly helpful across this industry. We have an extraordinary opportunity that we can take only if we make the changes to these regulations.

Will the Minister agree to meet me and other industry colleagues, potentially with the Economic Secretary to the Treasury, to discuss how we can perfect these regulations to be the positive, clear and consistent regulatory landscape that will enable industry and consumers to have the best experience and the most economically improving approach to crypto assets, stablecoins and digital assets in the UK? I look forward to the Minister’s response.

[Baroness Kramer (LD)]

My Lords, I confess that, when tried to work my way through this statutory instrument, I felt incredibly inadequate. I cannot pretend super expertise on crypto assets and stable coins. Most of the information that comes my way is, frankly, from the industry lobbying for the maximum amount of scope, along with assurances that this is just a much more efficient plumbing of the payment system—nothing troubling here, just an opportunity to enhance the economy.

I realise that a regulatory framework is necessary, as crypto has become mainstream and is no longer fringe. While I do not oppose the SI, I retain quite a degree of uncertainty. I start by picking up the issue of stablecoin. I know Chris, or the noble Lord, Lord Holmes, really well—I apologise for almost forgetting his name; I have moments of holes in the brain that I suspect come with age—but I question the assertion that stablecoin is essentially just fiat currency in another form. I know some of the stablecoin companies such as Tether argue that basically one Tether equals $1 in the form of treasuries. I am also clear that much of this is opaque. Those who I understand see the accounts of some of these firms say that, if stablecoins were really only matched one to one with a fiat currency, their earnings would be no more than the return you would get—if it was, for example, a dollar stablecoin—on US treasuries. That does not square with the earnings that they either report or promote as part of their future. There is certainly something opaque about stablecoin. We are much safer if we continue to regard this as a subset of crypto and look at it carefully before we give it any specialist position.

I understand the need for these regulations, but I am terribly conscious that the Government’s thinking in shaping all this has been much impacted by its membership of the joint UK-US Transatlantic Task Force for Markets of the Future. That has been guided and driven by the Trump Administration’s desire to use financial instruments as a means of extraterritorial control. We see this most obviously with trade tariffs—that is where Trump’s main speeches are and those are the instruments that he talks about. I understand that anybody who was at Davos and spent five minutes with US Treasury Secretary Bessent would have quickly understood that crypto and stablecoin are indeed instruments that, in the same way, offer great potential to advance US economic interests globally and for forms of what I think Mark Carney would probably have called financial coercion.

17:30

Indeed, within the US Treasury, the past few months have seen a significant strengthening of OFAC—the Office of Foreign Assets Control. This is the area to which it has turned its attention; I think that it would say to me, quite openly, that both crypto and stablecoin are very much part of that strategy. I am not sure that we are on to that or that we are recognising it. That is embedded in the thought process behind the statutory instrument.

I am also conscious that the Government are driven by this concern for immediate growth in the financial services sector. I understand that—we all want to see that sector strengthen and grow—but that has made it very susceptible to any blandishment that includes “innovation”. We have heard that word from the noble Lord, Lord Holmes, today.

I wish that, in the Explanatory Memorandum—and, certainly, in our discussions around this—we would have a much more explicit discussion of the risks. For example, although I take some comfort from the provisions in this SI, which limit public offerings of crypto assets, the language of the SI seems to offer the regulator huge scope and unaccountable discretion, so that what we think is a fairly limited set of permissions, under this statutory instrument, could be made much broader without any parliamentary intervention or any accountability to Parliament.

I am also concerned that the Government’s guiding philosophy—we heard this phrase used in some form or other by the Minister, but it is also in the Explanatory Memorandum—is

“same risk, same regulatory outcome”.

That is misleading. The risks are not the same; this is not just about using different pipes for the plumbing. The financial mechanisms in cross-border trade using dollar stablecoin, which is a good example, are far more under US Treasury control than a trade made in US dollar-denominated assets held beyond the reach of the Federal Reserve, which is where most of the dollars outside the US currently sit. I see no recognition in the SI of that fundamental difference between a dollar stablecoin used for cross-border transactions, which can be subject to levers pulled by the US Treasury, versus trade that can take place in dollars without any reference to the US Treasury at all.

Until this statutory instrument, the focus of the regulation of crypto assets—the Minister was very clear about this—has been on anti-money laundering, against financial crime and against false prospectuses. Can the Government give us some assurance that none of the current protections—many of us already regard them as very weak, because the London laundromat is churning away quite happily despite all the anti-money laundering provisions—will be weakened from where they are today, at least? We all know that part of the reason why Russia is evading sanctions so successfully is that it is basically operating in the crypto world. That translates to fiat in places—many people believe that those places include Switzerland—and ends up in the London market. Any further weakening of the regime that attempts to contain that would, I think, be extremely worrying.

The EU has taken OFAC’s moves to use crypto as a tool of financial coercion far more seriously than the UK has. As everyone will know, the EU is preparing a digital euro to go live in 2029, as its response to this situation. Have the Government engaged with the EU to make sure that our rules enable the UK economy to benefit from that digital euro when it appears or are they still very focused on the US arena and, in essence, a US-defined crypto and stable sector?

I will talk lastly about individuals and small businesses. Individuals have, to date, received a clear message that you can put your money into crypto—bitcoin is a good example—but it is not regulated, so you are genuinely at risk. The message that will go out is that this is regulated now. I am concerned that this is bonus day for scammers and that they now have a mechanism whereby they can convince many more people that this is a safe and approved investment that is being offered to them on the system. Can the Minister comment on that? Are there strategies in place to make sure that people understand that these regulations do not mean that anything they see is an approved investment?

I always accept that the FCA takes seriously the protection of individuals, ordinary consumers and micro-businesses. It is not always that effective, but that is its focus. However, the regulatory parameter means that the FCA takes no part in protecting small businesses. With so many small businesses on their knees and open to tempting ways to obtain money for survival, what in this SI provides small businesses with any meaningful protection? Are we again constrained by the regulatory parameter that determines the room and scope of the FCA? Otherwise, the message of caveat emptor needs to be sent out very powerfully to small businesses, because you can see how many might become susceptible to the opportunities that are offered to them now that this becomes a regulated product, if they do not realise that this does not apply to anything sold to them.

Finally, I am concerned that this statutory instrument attempts to future-proof by giving the regulator powers to act pretty much as it chooses without any further reference to Parliament. Given the rapidly shifting sands in this area, both domestically and globally, is it really appropriate for the FCA to be immune to further oversight? Could the Minister respond to that?

[Baroness Neville-Rolfe (Con)]

My Lords, as we move forward in an age of rapid technological change, it is right that we legislate to keep pace. This statutory instrument is, in many ways, an example of how Parliament can embrace that change. I thank the Minister for setting out how the regulations will work and for responding to the scrutiny committee’s concerns.

17:38

Sitting suspended for a Division in the House.

17:48

[Baroness Neville-Rolfe (Con)]

I was thanking the Minister for his response to the scrutiny committee’s concerns. I also thank the noble Baroness, Lady Kramer, for her well-informed insights, as usual, and her correct reference to risk. I very much look forward to the Minister’s response on that point.

While the Official Opposition are supportive of the direction of travel, we believe that the drafting is flawed. My noble friend Lord Holmes of Richmond explained that well; he called it a “wrinkle”. Fortunately, following the debate in the other place, I believe that the Minister and his crypto asset team have agreed to look into this with interested parties and that a follow-up meeting is planned between the Minister and our shadow Minister. I say at the outset that this is most welcome.

Crypto assets such as Bitcoin are commodities. They are bought and sold in anticipation of changes in value, much like shares or bonds. Stablecoins are different. They are backed by a fiat currency and act as a proxy for that currency. As such, stablecoins sit within the payment system and should be regulated as part of it. The draft instrument establishes the regulatory framework for crypto assets in the UK, including stablecoins. What we are therefore debating is critical to the delivery of the Government’s stated ambition for the UK to become a global hub for digital assets and blockchain technology—although I believe that the vast majority of such assets are held in the United States at present.

Equally, according to Bitpanda and Opinium, one in five adults in the UK has invested in crypto assets, and 40% of them are under 35. The possibility of high returns seems to be the main motivator, with portfolio diversification also being important. According to the same survey, the prime reason for transferring crypto is for the purchase of goods and services.

The Government’s policy note accompanying the original draft of these regulations made clear that it was published to identify errors or oversights that could lead to unintended consequences. My concern today is that such an oversight remains, so the instrument fails to achieve its stated aim.

A thriving digital asset market requires an effective form of digital cash. There are three such forms: central bank digital currencies, tokenised commercial bank deposits and regulated stablecoins. All three should be able to operate seamlessly alongside traditional fiat money with regulations that reflect how each functions in practice. The Bank of England has recognised that regulated stablecoins could deliver faster, cheaper and more functional payments, both domestically and across borders, as part of a multi-money system alongside commercial bank money. If we fail to regulate stablecoins in a way that reflects the real-world function, we risk losing ground to other jurisdictions. If using stablecoins means facing new regulatory hurdles, they simply may not be used.

In the UK, we have a long history of encouraging innovation in a regulated financial services sector. This record and the ability to innovate is vital to both growth and stability. With the current wording of the instrument, the UK could see the prize of innovation slipping away. Will the Minister comment on that concern?

The Government have attempted to address the problem in the context of payments by importing an existing exemption for the purchase of goods and services. However, that approach is ill suited to stablecoins and fails to provide clarity for all participants, particularly those who convert fiat into stablecoin and back again. Without certainty for these actors, the payment system may not be able to function effectively. A clearer approach would be a bespoke exemption for stablecoins or the use of an existing definition that captures payment activity within payment services regulations. I would be interested to hear about the current direction of travel on these various ideas.

Before I conclude, I would be grateful if the Minister would reflect on a number of broader questions that arise from this statutory instrument and the wider regulatory architecture within which it sits, and let me have a response—either today, which would be ideal, or in writing. I was very grateful to the Minister for the helpful letter he sent me following our last financial services discussion in Grand Committee. He will be aware that the House of Lords Financial Services Regulation Committee is planning an inquiry into crypto assets, so these questions are important, and the answers might be helpful to the debates that that committee will have.

First, how confident are the Government that the regulators are striking the appropriate balance between their statutory objectives for consumer protection, market integrity and financial stability, while also enabling the growth and innovation in our financial services sector that I think we both want? Given previous concerns that our regulatory system can at times err on the side of excessive caution, are the Government satisfied that the framework will not result in valuable crypto-related activity being driven offshore?

Secondly, how big is the risk of fraud, and what is being done to combat it? The noble Baroness, Lady Kramer, rightly talked about the danger of scams. Although she was less concerned about individual consumers, whom she sounded as though she felt were reasonably well protected, she made a very important point about scams hitting SMEs.

Thirdly, turning specifically to stablecoins, how significant do the Government believe sterling-denominated stablecoin activity could become in the United Kingdom? Does the Minister have concerns about potential disintermediation from the regulated banking sector and any consequent implications for banks’ capacity to lend to the real economy? If so, how do the Government intend to balance the imperative of supporting economic growth with the opportunity to foster innovation?

Finally, what steps are being taken to improve public understanding in this area? There is evidence that some young people are engaging with cryptocurrencies in a highly speculative manner, while others are deterred entirely by a lack of accessible information. Does the Minister share my concern that the continued absence of meaningful financial education within our various education curricula leaves many citizens ill equipped to make informed decisions in what is now an increasingly complex financial landscape?

We are united in our desire for the UK to do well in this field. It seems that the technical flaw, of which my noble friend Lord Holmes of Richmond also spoke, can be corrected, although I assume that this would have to be done by an amending SI rather than the withdrawal of the SI under discussion. In any event, I look forward to the Minister’s response to this and to the other questions that I have set out. This is an important area, and it is right that we take the time to scrutinise the intentions and effects.

[Lord Wilson of Sedgefield (Lab)]

My Lords, I thank noble Lords for their contributions. This has been an interesting debate. There are a lot of questions on this and I will do my best to answer them—I have been making notes. I may not get to respond to them all but, if I do not, as before, I will scour through Hansard and respond accordingly.

I welcome what the noble Lord, Lord Holmes, said about this going in the right direction, although there might be one or two problems—a wrinkle—that the department will probably look at and try to iron out, if they exist. We welcome the feedback. This SI enables the FCA, we believe, to respond nimbly to emerging demands. This is an area of continuing development. We will keep the regime under review, but we are not proposing to alter the instrument at this stage of the legislative programme.

Stablecoin and bitcoin are treated the same. It is right to note the difference between stablecoin and other more volatile crypto assets and to recognise the potential for stablecoin to play a significant role in payments. While stablecoin and other crypto assets are different in some ways, they share many characteristics and, therefore, risks. Regulating stablecoin in line with other crypto assets is, in many circumstances, the right approach. For example, firms dealing in or safeguarding stablecoin should be subject to similar rules as those for firms dealing in or safeguarding other crypto assets.

18:00

I just say to the noble Lord, Lord Holmes, that we have met with the industry on more than one occasion to consider what needs to be done in drafting this SI, and we will engage with the industry over the coming months and years.

There were questions about the risks of crypto assets. One of the reasons that we have this SI in place is that we are aware that there need to be additional regulations here—more than we have for money laundering or for the protection of consumers, as far as advertising crypto currencies is concerned. This is a big issue. The Government take fraud and scams very seriously, and we are developing a new and expanded fraud strategy to further protect the public and businesses from these appalling crimes. The relevant crypto asset firms are already subject to UK financial promotion requirements and, as I said, to the FCA’s money laundering requirements and regulations.

The noble Baroness, Lady Kramer, specifically asked what the Government think about stablecoins. The Government consider that stablecoins have the potential to play a significant role in both retail and wholesale payments. We are already seeing the benefits that stablecoins can provide in cross-border payments, reducing costs and improving efficiency. The Government also recognise that unlocking the full transformative potential for digital assets and blockchain technologies requires payments that interact with them directly, and stablecoins can play an important role in achieving this. It is therefore important for the UK to harness these opportunities in the promotion of the ongoing competitiveness of UK financial services, while it ensures the robust protection of consumers. We believe that they can go hand and hand—we can be innovative, promote growth and look after consumers.

[Baroness Kramer (LD)]

My issue on this is related but slightly different. If we are dependent on dollar stablecoin for international trade, which is the direction of travel, and the US Government decide that they do not like either a policy that we have or a piece of trade, they can, through the companies that sit behind that stablecoin, in effect shut us down and cut us out. That is a very different set of circumstances from those in which we live today, where they might want to do that, but they cannot. They may try to make banks act in the way that they want, but they would have a far more challenging job in doing that. I am just concerned that that thinking is not embedded in the way that we are structuring this and doing the regulation. That is my concern. I see the plumbing advantages of stablecoin, but I worry about where the power levers are set. I cannot see that this addresses any of that.

[Lord Wilson of Sedgefield (Lab)]

That is a very important question about monetary sovereignty. While most stablecoins today are US-denominated—I think about 99%—and issued overseas, this instrument lays the groundwork for a thriving ecosystem, including UK- issued pound-denominated stablecoins. The Government are considering the regulators’ proposals on stablecoin-backed assets that include UK government debt. The Treasury will assess the fiscal implications and benefits of stablecoins in this context, and I think the Treasury is well aware of the noble Baroness’s concerns. It is something that we take very seriously, and we will probably hear more about that as time goes on.

The Government are committed to ensuring that the UK remains an open and connected financial centre, as we need to be in a globalised economy, and to upholding its commitment to international regulatory standards. We are working with the transatlantic taskforce on all these issues to enhance US-UK collaboration. We are aware of the issues that the noble Lord raised on capital markets, and the taskforce will explore options for short to medium-term collaboration on digital assets, additional opportunities for wholesale digital markets innovation and ways to improve links between our capital markets to enhance the growth and competitiveness of both UK and US markets.

On the specific quote used by the noble Baroness, Lady Kramer—

“same risk, same regulatory outcome”—

we think that this instrument allows the FCA, as the regulator, to set appropriate and detailed rules addressing market risks. We therefore do not believe that we have the same regulations as always for the risks.

Noble Lords asked whether there is a problem with the anti-money laundering requirements and whether this instrument goes far enough to look after consumers. To be clear, the Government are not weakening the anti-money laundering requirements; for example, they will continue to apply to crypto asset firms exactly as they do today. This legislation goes further by introducing a robust financial service regulatory regime that will require all firms offering crypto asset services, either in the UK or for UK consumers, to be authorised and regulated by the FCA and to comply with comprehensive conduct and prudential rules.

It is fair to say, I think, that this SI goes a long way to help to protect consumers. The creation of a register of authorised crypto asset firms will make it easier for consumers to identify legitimate firms. The requirement for those firms to comply with the comprehensive conduct regime will reduce the risk of poorly run firms and bad practice resulting in consumer harm. By defining and prohibiting market abuse—as well as placing an obligation on firms to put systems in place to prevent, detect and disrupt such abuse—this instrument will improve the integrity of crypto asset markets and lead to better consumer protection.

Also, the regime will leave the UK well-placed. There was a question about what Europe is doing as well. We continue to co-operate internationally with our partners, including the EU; we also continue to watch the development of the digital euro with great interest.

Both noble Baronesses asked about parliamentary scrutiny, in essence. We believe that this instrument sets out a clear regulatory framework that will ensure that the Government’s aims and objectives for the sector are reflected in the regulations’ final rules. Giving the FCA flexibility on the detail of the regime will allow it to respond nimbly to developments in this fast-evolving sector; that said, Parliament will be able to hold the regulator and government to account on an ongoing basis using the regime, once it is live, through normal means such as requiring attendance at Select Committees. Also, should it become apparent that the regime is not working as intended, the Government will have the option to return to Parliament and amend the framework under which the FCA operates.

Someone asked what the impact on small businesses will be. The impact assessment published alongside the instrument sets out the impact that the Government expect the regime to have on all businesses, including small businesses. The FCA has existing duties to consider the most appropriate way of implementing this regime.

I hope to get through all noble Lords’ questions. As far as our people know, in terms of what is regulated, firms authorised for the new crypto asset activities will appear on the FCA register in the same way as firms authorised for traditional financial services activities.

As far as payments are concerned, I think stablecoin was mentioned. Government work is under way in order to take forward broader work to modernise assimilated law on payments, including to ensure that the UK’s payments regime is fit for tokenised payments such as stablecoin. That work is ongoing.

We all know about the opportunities for cryptocurrency. We cannot disinvent it. We have to make sure that it works for the British economy and the British people; and that people are protected. This SI lays down a framework so that consumers can be protected.

I turn to the two final questions. The Government are committed to making the UK a world-leading destination for digital assets. Our regulatory regime has been developed through extensive engagement with industry and international partners, ensuring it is both internationally competitive and aligned with global standards. This legislation will support UK growth by giving crypto asset firms the regulatory certainty needed to invest here and drive innovation in our financial services sector. So, in answer to the question of the noble Baroness, Lady Neville-Rolfe, we do not think that this is too restrictive.

Finally, on financial education, which we are all keen to see in our schools and broader society, the Government want people to have the confidence and skills they need to manage their money. The Money and Pensions Service, an arm’s-length body of government, provides free, impartial guidance to consumers at every stage of their financial lives. More widely, the Government are taking steps to improve financial education. In November, we set out our plans for all school children in England to receive financial education. This reflects the Government’s wider commitment to financial literacy and building a population better able to make informed decisions about financial products.

I hope I have hit all the questions. If I have not done so, we will go through Hansard and get back to noble Lords about what perhaps we have missed out.

[Baroness Neville-Rolfe (Con)]

The Minister’s reply was extremely helpful. One thing I am a little uncertain about relates to the Treasury, or the crypto assets unit, looking at the possible wrinkle or flaw that my noble friend Lord Holmes mentioned. If that led to a change in the SI, my understanding is that it would not come back here. That is because, in answer to the question of the noble Baroness, Lady Kramer, the Minister explained that this is a ground-breaking SI and after that, because it is important to be flexible, the FCA would make any changes. Assuming that is right, this is a plea from us for an update as to the progress of those discussions when they have taken place. My understanding from our shadow Minister in the other place was that discussions were ongoing on this matter, which he was extremely grateful for. It would be useful for us to know the final outcome of those. If a small change has to be made to the regulations, I am sure we will be supportive.

I am delighted to hear about financial education. I look forward perhaps to giving the Minister a cup of tea and learning a bit more about that on a future occasion because it goes beyond the framework of today’s discussion. On SMEs, it is not only that we want the Government to think about them, which they are obviously doing, but to make sure that the scam issue with SMEs is part of either the Government’s or the FCA’s thinking. It is an important matter for struggling small businesses in the country. We do not want that issue to go further. I am happy to agree to the passing of this statutory instrument and thank the Minister and the Treasury for all the work that they have done in this area.

[Lord Holmes of Richmond (Con)]

My Lords, I likewise thank the Minister and the team for the thoroughness of the answers. To underline the point raised by my noble friend Lady Neville-Rolfe, can the Minister say today clearly whether there are ongoing negotiations, which is our understanding, around this specific point or whether this SI will through unamended and that is the Government’s position? Secondly, do the Minister and the Government accept the issue of double regulation, which would be a consequence of these regulations, and the broader point around that? That is because of the roles that particularly the Bank of England and the FCA are playing in this process, with firms potentially finding themselves subject to double regulation at different stages of their development.

18:15

If this regulation of itself causes and impacts double regulation, how are the Government looking at ensuring that that will not become an increasing issue as we go through other aspects of this environment? In essence, what work and focus is being done to ensure that double regulation does not happen as a consequence of this regulation, and, more generally, to have that assurance that it will not happen as a consequence of the various parties that are doing effective work in this space? The potential always is either that it will be double regulation or that there will be gaps.

[Lord Wilson of Sedgefield (Lab)]

On the question of what can be described as the wrinkle, I hope that, if there is any slight issue with all of this, we will try to work it out in regulation; however, the FCA is looking at it, and that might be the way to do it. Obviously, as I said earlier, if something needs to be changed, we have the right to bring it back to Parliament and have another go, basically; that may include further legislation.

On double regulation, in terms of the Government’s view of the Bank of England’s consultation on systemic stablecoin, the Government recognise that facilitating stablecoin innovation is important for UK competitiveness. The Treasury and the Bank of England are maintaining close, ongoing dialogue on the legal and regulatory treatment of stablecoin in support of the Government’s objective to make the UK a global destination for digital assets.

The main point is that we want this sector and these regulations to do several things: grow the economy; be flexible enough to change when they need to change; and look after the consumer. We are building on regulation that may have been there, as far as the consumer is concerned—on money laundering, for example—and we will go in that direction, but we will work very closely with the industry so that we have something that is suitable for both the consumer and the industry. This is a sector that we would like to see thrive; as I said, you cannot disinvent it, so we need to make it work for us.

Motion agreed.