UK’s Crypto Overhaul: Same Risk, Same Rules—But Will Innovation Survive?

The UK’s Financial Conduct Authority (FCA) has unveiled a sweeping regulatory overhaul for the cryptoasset sector, signaling a decisive shift toward aligning digital assets with traditional financial services standards. Central to the proposals is the application of core FCA Handbook rules—such as the Principles for Business (PRIN) and Threshold Conditions (COND)—to crypto activities including stablecoin issuance, trading platforms, staking services, and custody arrangements. The initiative, outlined in Consultation Paper 25/25 (CP25/25), aims to enhance consumer protection, operational resilience, and market integrity while fostering innovation in a high-risk, volatile sector FCA Unveils Sweeping Crypto Regulations: A New Era for Digital Assets in the UK^[1].

The FCA’s approach is guided by the principle of “same risk, same regulatory outcome,” ensuring that crypto firms face comparable obligations to traditional financial institutions for activities with equivalent risks. This includes stringent operational resilience requirements, such as robust safeguards for private key security and validator risks, and mandatory FCA authorization for all regulated cryptoasset activities. However, the regulator has proposed exemptions for certain principles—like integrity (PRIN 1) and skill, care, and diligence (PRIN 2)—in transactions between members of cryptoasset trading platforms (CATPs), mirroring exceptions in traditional finance FCA Unveils Sweeping Crypto Regulations: A New Era for Digital Assets in the UK^[1].

The regulatory framework also addresses consumer protection gaps, with the FCA consulting on whether the Consumer Duty—which mandates firms act in customers’ best interests—should extend to crypto firms. While the regulator acknowledges challenges posed by decentralized structures, it proposes tailored protections for retail investors, such as mandatory disclosures for staking services and restrictions on high-risk lending products. Additionally, the Financial Ombudsman Service (FOS) may gain jurisdiction over crypto-related complaints, offering a redress mechanism for UK retail clients FCA Unveils Sweeping Crypto Regulations: A New Era for Digital Assets in the UK^[1].

Stakeholder reactions highlight tensions between regulatory rigor and innovation. While some industry groups welcome clarity, others warn that the proposals could drive innovation offshore, particularly for smaller firms and decentralized finance (DeFi) protocols struggling with compliance costs. The FCA’s roadmap, however, emphasizes phased implementation, with final rules expected by 2026. This timeline aligns with broader UK ambitions to position itself as a global leader in crypto regulation, balancing alignment with international standards—such as the EU’s Markets in Crypto-Assets (MiCA) and the US’s evolving legislative landscape—with a distinct focus on growth-oriented oversight Strengthening and Safeguarding the UK Crypto Market^[3].

Globally, the UK’s approach reflects a broader trend toward crypto regulation. The UAE has already established a comprehensive framework, while the US under President Trump has signaled pro-crypto policies. The FCA’s consultation period, closing in November 2025, will shape final rules that aim to harmonize the UK’s crypto sector with traditional finance while addressing unique risks like operational vulnerabilities and market abuse.