Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2025

Lord Holmes of Richmond Excerpts

Wednesday 28th January 2026 Grand Committee

[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.

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[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.