The UK has taken a decisive step toward comprehensive cryptoasset regulation. As explained in our earlier client briefing on the near-final version of the legislation, the UK cryptoasset framework will look similar to traditional UK financial regulation with some modifications to reflect the idiosyncrasies of cryptoassets.
On 15 December 2025, HM Treasury laid before Parliament the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2025 (the Cryptoasset Regulations). The Cryptoasset Regulations were subsequently made on 4 February 2026. On 16 December 2025, the FCA published three consultation papers setting out additional proposed rules that would establish (i) a conduct framework for certain new regulated cryptoasset activities, (ii) a cryptoasset Admissions & Disclosures regime and Market Abuse Regime for Cryptoassets and (iii) a prudential regime for cryptoasset firms. Subsequently, the FCA published an additional consultation paper on 23 January 2026 outlining its further proposals for the application of the FCA Handbook for regulated cryptoasset activities (CP26/4). These consultation papers set out further detail as to how the future regime is expected to operate at a more granular level.
The FCA's most recent proposals contain much that was expected. However, some of the most consequential details lie in the policy choices that weren't headline news. From an interest prohibition that could hand offshore stablecoin issuers a competitive advantage, to a novel branch structure that may reshape how global exchanges access the UK market, these consultation papers reveal the trade-offs the FCA is willing to make as it builds out the UK's cryptoasset regime. In this post, we highlight four notable policy choices across the FCA’s latest proposals and the questions they raise for firms planning their UK strategy.
This is the first in a series of related posts. Over the coming days, we will examine the Cryptoasset Regulations and each of the recent consultation papers in greater detail.
The Competitive Constraints of the Interest Prohibition
One of the decisions in the December package that may be more commercially significant is one that is a continuation of the FCA’s earlier proposals: UK issuers of qualifying stablecoins will not be permitted to pass through interest from the backing asset pool to qualifying stablecoin holders.
This is a restriction which could dampen the competitiveness of UK-incorporated stablecoin issuers compared to those stablecoin issuers that are not subject to the UK rules. A well-managed stablecoin backed by gilts or other high-quality liquid assets can generate meaningful yield and certain non-UK stablecoins share this yield with holders or distribution partners. Under the FCA’s proposed prohibition, UK-incorporated stablecoin issuers will not be able to offer similar features and would instead retain any revenue from interest. The policy reason for the restriction on the payment of interest appears to be to distinguish qualifying stablecoins further from funds or other investment products, but this has the (presumably unintended) consequence that UK-issued qualifying stablecoins may be less attractive than offshore alternatives that offer yield-sharing arrangements. If there is a concern about the distinction between stablecoins and other types of product, that should be managed through clear rules and guidance. The practical upshot of the proposed approach is that UK-issued qualifying stablecoins could be less attractive to consumers than stablecoins issued by offshore competitors (who may not be regulated by the UK regime at all).
When is a Payment Service Not a Payment Service?
HM Treasury has proceeded with its initial proposal not to amend the Payment Services Regulations 2017 (PSRs) to bring qualifying stablecoin payments within the regulated perimeter for payment services. This approach does not prevent stablecoins being used to make payments but it does mean that transfers of non-systemic UK-issued qualifying stablecoins would not be subject to the same rules and requirements as other forms of payment. HM Treasury has indicated this may change in the future, as it considers that stablecoins have the potential to play a significant role in both wholesale and retail payments. It is unclear whether this will be viewed positively by the industry. On the one hand, there is flexibility for the FCA to make rules, rather than relying on changes to primary legislation, which may be more appropriate as it means that the fairly onerous requirements of the payment services regime will not apply. On the other hand, this suggests that HM Treasury does not see stablecoins as being methods of payment that are likely to be widely used and therefore the protections included in the PSRs are not required for UK consumers using UK stablecoins.
It worth noting that if a stablecoin is deemed “systemic” it would also trigger Bank of England supervision and the imposition of additional rules. Running in parallel, the Bank of England's November 2025 consultation on systemic stablecoins (which closed 10 February 2026) adds another layer of potentially applicable rules for stablecoin issuers (as explained here). If a stablecoin becomes "systemic" – which would be assessed qualitatively on a case-by-case basis by reference to certain factors including value in circulation, payment volumes and interconnectedness – the issuer’s regulatory obligations would fundamentally change. Systemic stablecoin issuers would face prudential supervision, potentially including capital and liquidity requirements. Firms seeking to issue stablecoins from the UK should therefore monitor both the FCA and Bank of England consultations together.
Benefits of Authorising the UK Branch of an Overseas CATP
The FCA is clear that whilst firms have a degree of choice on the form of their legal presence, its view is that UK retail customers should always have a relationship with a UK legal entity. However, the latest FCA proposals clarify that overseas cryptoasset trading platform (CATP) operators could combine a UK legal entity presence with UK authorisation of an overseas CATP via a UK branch in certain circumstances. The FCA plans to assess a CATP’s proposed legal form individually on a case-by-case basis at the gateway, as well as on an ongoing basis. The FCA’s proposed approach would create a novel hybrid structure which we think would be welcomed by non-UK CATP operators.
Major exchanges like Coinbase, Kraken and Binance operate unified global order books. Forcing them to establish separate UK subsidiaries that operate independent UK-only platforms would likely fragment liquidity (and potentially widen spreads) – or perhaps prompt them to refuse to set up in the UK at all. The branch structure, by contrast, would allow an overseas CATP operator to be authorised via a UK branch while the UK legal entity handles UK-specific regulatory obligations. This would mean that the platform itself would not need to be carved out to serve the UK market. This is consistent with what many international exchanges have been lobbying for in recent years. The FCA has published draft guidance clarifying its expectations to assist international firms seeking UK authorisation in CP26/4 – that guidance notes that the FCA may see cases where overseas cryptoasset firms serving UK customers through a UK branch could be authorised as a CATP operator, but in such cases, the FCA expects the home regulator to have comparable levels of regulatory protection and regulatory requirements in place (determined by the FCA). The FCA recognises that there is a case for operating a CATP through a UK branch where this can facilitate access to global liquidity in order to achieve better price and execution outcomes for clients. In all cases where firms are seeking authorisation, the FCA expects a presence in the UK of some sort.
The FCA will continue to consider whether its conduct rules should not apply to non-UK professional and retail users of UK-authorised CATPs. If these rules are disapplied for non-UK users, a global CATP authorised via a UK branch could apply full Conduct of Business Sourcebook (COBS) protections to UK retail clients and apply lighter (or no) COBS requirements to everyone else using the same platform. This feature might make UK authorisation more attractive for global platforms if they are not required to apply UK conduct standards across the board, although it may be difficult to apply different rules to different types of client in practice.
Finally, firms interested in implementing this structure should note that they cannot simply register a UK entity with minimal substance. The FCA's case-by-case assessment suggests it will be looking closely at proposed structures and may reject structures where the UK entity is manifestly a shell. Overseas CATP operators implementing this structure should therefore budget for real UK operations.
No Statutory DeFi Safe Harbour
Developers of partially decentralised protocols face ongoing uncertainty. The FCA's principles-based approach continues to be that rules and guidance will apply where there is a clear controlling person carrying on one or more of the new cryptoasset activities (in line with HM Treasury’s legislative intent). This provides flexibility, but each case must be considered on a case-by-case basis. The question of what degree of decentralisation suffices remains unanswered, although we should have more clarity once the FCA publishes its list of indications of control/(de)centralisation later this year. In the meantime, see our blog post for a more thorough analysis of the current state of play for DeFi firms.