Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2025

Lord Wilson of Sedgefield Excerpts

Wednesday 28th January 2026 Grand Committee

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.

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[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.

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[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.

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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.