The UK is at a crossroads. No, we’re not referring to any coordinated campaign by the crypto industry itself, though that would certainly be ironic. The government’s ambition for the UK to be the global crypto-asset hub is laudable. As is often the case, the devil is in the details. That’s a key question—are we building a springboard or a stumbling block?
Innovation Or Suffocation Of Crypto?
Let's be clear: no one wants the Wild West of crypto to continue unchecked. The scams, the rug pulls, the absolute idiocy – it’s a bad look for the space as a whole and it undermines public faith. Sensible regulation, written and enforced to protect consumers and to make markets work, is needed. The question is: are we being sensible, or are we overreaching?
The FCA’s “same risk, same regulation” approach sounds good in theory. If the same risks are present, why should crypto be treated any differently than traditional finance? This is where the unexpected connection comes in: regulating crypto like TradFi is like trying to fit a square peg into a round hole. Crypto’s unique decentralization, its breakneck speed of innovation, and its global characteristics require a more sophisticated treatment.
Picture this—imagine the early days of the internet. Just think if regulators had attempted to shoehorn current postal service rules overtop of email. Otherwise, we’d still be waiting for our cat gifs to come by snail mail!
The danger here is stifling innovation. If the burden of regulatory complexity becomes too onerous, particularly for nascent smaller startups, they’ll just take their ball and go home. Singapore, Switzerland, even the US (despite its own regulatory uncertainties) are all vying for the same crypto talent and investment. We simply cannot miss the boat because our regulations are unnecessarily prescriptive or lagging too far behind.
Global Race: Are We Falling Behind?
Meanwhile, the UK appears to be progressing towards incorporating crypto into its existing regulatory framework. This latter approach appears much more aligned with the strategy employed by the US. Is this a smart move? Or are we just regurgitating someone else’s answers and not taking the initiative to do the work ourselves?
We should be asking whether these regulations are competitive enough on a global scale.
The suggested new obligations for stablecoin issuers, seen as directly comparable to cryptocurrencies like Bitcoin, for instance, could disadvantage UK firms. For overseas firms, this means they will not normally require authorisation unless the issuance activity takes place within the UK. This would encourage firms to locate their activities outside of the UK, robbing the country of jobs and investment. This is anxiety-inducing stuff!
| Feature | UK (Proposed) | US (Current) | Singapore (Current) |
|---|---|---|---|
| Regulatory Style | Integrated within existing framework | Fragmented, state-by-state + federal | Comprehensive, tailored framework |
| Stablecoins | Regulated under e-money framework | Under development, varying state approaches | Clear regulatory framework |
| DeFi | Regulated if controlling person identified | Unclear, subject to existing securities laws | Actively exploring regulatory approaches |
| Licensing | Required for most crypto activities | Varies by state and federal jurisdiction | Required for most crypto activities |
Protecting retail investors from harm is paramount. There's a world of difference between protection and paternalism. Instead, are we infantilizing adults and acting like they are too irresponsible to make their own choices?
The answer isn’t restricting access or banning all flavored products. There are risks associated with investing in cryptocurrency that all investors need to be aware of. People should be able to decide for themselves whether or not to join in.
Consumer Duty: Protection or Paternalism?
Take, for example, the proposed capital and liquidity requirements for crypto firms. Though these measures are meant to ensure fiscal soundness, they may pose unnecessary hurdles to entry for other would-be newcomers. Is this fair? Or as we take these actions, are we inadvertently creating an enterprise risk management oligopoly of large, well-capitalized firms.
The timeline is concerning. The FCA anticipates finalizing the rules and guidance in 2026, before starting to bring any new regimes into effect. That’s an eternity in the rapidly-evolving space of crypto. By that time, the technology may have advanced so far as to make the regulations irrelevant.
We’re calling for a better, more nimble and more cross-agency, cross-sectoral approach. The government and regulators must engage in ongoing dialogue with the crypto industry to ensure that the regulations are practical, effective, and supportive of innovation. The FCA’s two concurrent consultations, CP25/14 and CP25/15, offer a great starting place. Now, the onus is on them to deliver better and deliver better soon.
The market has a responsibility, too. So let’s engage with the process and provide helpful criticism. Together we can, and we must, work with regulators to create that fair regulatory framework that protects all market participants.
We need to find the proper balance between consumer protections and innovation. If we do it correctly, we can ensure that the UK becomes a crypto hub in every sense of the word. If we get this wrong, we will pay the price by losing ground in the worldwide competition. That would be a shame because it would mean squandering a tremendous opportunity. The stakes are high. Let’s just hope our regulators are equal to the task. We have a once-in-a-century opportunity to do so if we get it right.
We need a more agile and collaborative approach. The government and regulators must engage in ongoing dialogue with the crypto industry to ensure that the regulations are practical, effective, and supportive of innovation. The FCA's consultations (CP25/14 and CP25/15) are a good start, but they need to be followed up with meaningful action.
The market has a responsibility, too. We need to engage with the process, provide constructive feedback, and work with regulators to create a regulatory framework that works for everyone.
Ultimately, the success of the UK's crypto regulation will depend on whether we can strike the right balance between protecting consumers and fostering innovation. If we get it right, the UK could become a true crypto hub. If we get it wrong, we risk falling behind in the global race and missing out on a huge opportunity. The stakes are high. Let's hope our regulators are up to the challenge. This is a awe-inspiring opportunity if we get it right.
