UK Crypto Rules to Align With U.S. From 2027, Boosting FCA Oversight

Britain announced Monday that it will extend financial regulations to cryptoassets from October 2027, aligning its approach with the U.S. rather than the EU according to reports. The new law, introduced into parliament, aims to provide clarity for firms and strengthen consumer protections while deterring fraudulent activity in the crypto space. The draft bill remains largely unchanged since its initial release earlier this year, signaling a relatively stable legislative path forward.

The government's move follows growing interest in cryptoassets, particularly after the U.S. under President Donald Trump pledged to support the industry. Despite a recent slump in Bitcoin's price, global demand for digital assets remains strong. UK regulators have emphasized the need to modernize the financial landscape and ensure the UK remains a competitive hub for innovation in the digital age.

Finance minister Rachel Reeves described the regulation as a "crucial step" in securing the UK's position as a leading financial center. The rules will require crypto companies to register with the Financial Conduct Authority (FCA), ensuring they meet the same standards as traditional financial services. This step aims to boost transparency and accountability in the sector while also curbing illicit activities such as money laundering.

Regulatory Alignment and International Comparisons

The UK's regulatory approach is distinct from the EU's Markets in Cryptoassets (MiCA) framework, which came into force in 2024. Instead, the UK is adopting a model similar to the U.S., where crypto-friendly policies have attracted significant investment. This decision reflects a broader strategic alignment with Washington, including through a "transatlantic taskforce" aimed at coordinating regulatory best practices.

The U.S. has moved quickly to establish a clear legal framework for stablecoins and other digital currencies.

. The UK, by contrast, has been slower to act. Critics argue this delay has made it harder for the UK to attract crypto firms compared to jurisdictions like the EU, which offer more immediate regulatory clarity according to analysis. The UK's new rules aim to address this gap and position London as a hub for compliant digital finance.

Industry Reactions and Implementation Challenges

Crypto companies have generally welcomed the introduction of a more structured regulatory environment, though some remain cautious. Natalie Lewis, a partner at Travers Smith, noted that while the draft legislation has improved, further refinements may be needed to resolve technical legal issues. The FCA has been working on bespoke rules covering trading, custody, and stablecoins, with final regulations expected by the end of 2026.

Gemini's UK head, Daniel Slutzkin, acknowledged that the industry has long awaited regulatory clarity. With the new rules, he said, firms can now begin preparing to meet the standards. However, challenges remain, particularly in aligning with existing frameworks for electronic money and addressing uncertainties around the territorial scope of the legislation according to industry analysis.

The Financial Markets Law Committee (FMLC) has highlighted concerns about the drafting of key sections of the proposed rules. For example, it remains unclear how stablecoins will be treated under the new regime and whether they will fall under the electronic money framework or the new licensing rules according to experts. These ambiguities could complicate compliance efforts and deter some firms from operating in the UK until the rules are finalized.

Consumer Protection and Market Integrity

A central goal of the new regulations is to enhance consumer protection. Currently, many crypto services operate outside the traditional financial regulatory perimeter, leaving investors vulnerable to fraud and market manipulation according to experts. The UK Treasury aims to change this by requiring crypto companies to meet transparency and accountability standards similar to those applied to stocks and shares.

Recent high-profile cases, including the conviction of a Chinese woman for a £5bn bitcoin fraud in the UK, have underscored the risks associated with unregulated crypto activity according to reports. By bringing crypto assets into the regulatory fold, the government hopes to reduce such incidents and restore investor confidence.

The FCA and the Bank of England will play key roles in enforcing the new rules. Both institutions are expected to finalize their guidelines by 2026, ensuring a coherent and timely implementation of the new regime. Meanwhile, the government is also considering a ban on cryptocurrency-based political donations, citing concerns over the difficulty of tracing their origins according to government sources.

What This Means for Investors and Firms

For investors, the new regulations should offer a greater degree of assurance. By imposing stricter rules on crypto firms, the UK aims to reduce the risk of fraud and market instability. However, it is important to note that regulators continue to emphasize that investing in cryptocurrencies carries significant risks, including the potential to lose all invested funds according to market analysis.

For firms, the transition to a regulated environment presents both opportunities and challenges. On one hand, the new framework could attract more legitimate businesses to the UK by providing a clear legal structure. On the other, compliance costs and regulatory hurdles may pose difficulties, especially for smaller firms or those based overseas.

The UK's regulatory approach is now at a critical juncture. While the government has taken important steps to modernize the financial system, it must balance the need for robust oversight with the imperative to attract and support a growing industry. As the EU and U.S. continue to refine their own frameworks, the UK must ensure that its rules remain competitive and adaptable.