UK's FCA Unveils Crypto Regs to Fuel Innovation, Safeguard Markets

The UK is set to roll out new regulations for the fast-growing crypto sector, with the Financial Conduct Authority (FCA) releasing a consultation on measures aimed at enhancing consumer protection and market transparency. The proposed rules include intermediary licensing for crypto exchanges, agents, and dealers, as well as tailored disclosure requirements for cryptoassets. The FCA also plans to finalize policy statements on stablecoins and related activities by next year.

The development comes as the UK seeks to carve out a distinct role in the global crypto landscape, following the U.S. in establishing a regulatory framework that balances innovation with safeguards. With roughly 12% of UK adults now owning or having owned crypto, the government aims to ensure the country remains a competitive hub for blockchain technology and responsible innovation.

. The FCA's approach emphasizes a control-based decentralization framework, which would objectively determine when a blockchain system is decentralized and thus eligible for lighter regulatory treatment. This framework is designed to reduce regulatory friction for decentralized systems while maintaining protections for users, particularly during the transitional phases of blockchain projects.

A Control-Based Decentralization Framework

The FCA's proposed control-based decentralization framework is seen as a critical step in aligning regulation with the unique characteristics of decentralized systems. By measuring operational, economic, and governance control, the framework aims to provide clarity on when a project has transitioned from a controlled environment to a decentralized one. This distinction is important for determining which regulatory obligations apply.

Under the framework, systems that eliminate control would face fewer regulatory requirements, while those retaining control would be subject to more traditional oversight. This approach mirrors similar efforts in the U.S., such as the CLARITY Act, which outlines measurable standards for decentralization. The FCA is also expected to issue guidance on how this framework applies to decentralized finance (DeFi) and related activities.

The guidance is likely to clarify that DeFi systems without operational control are not subject to intermediary licensing rules. This would exclude non-custodial platforms and developers from unnecessary regulatory burdens, provided they do not control user assets or transactions. Developers and interface providers enabling direct peer-to-peer transactions via blockchains would also be excluded from the intermediary licensing regime.

Tailored Disclosure Regimes and Market Protections

Alongside the control-based framework, the FCA is proposing tailored disclosure requirements for network tokens. These rules would evolve from issuer-centric disclosures to network-centric ones once a project achieves decentralization. This shift recognizes that onchain data becomes the primary source of information for investors and users in a decentralized environment.

To address market abuse risks, the FCA is also considering mandatory lock-up periods for insiders-founders, staff, and early contributors-while a project remains centralized. These restrictions aim to prevent price manipulation during transitional phases when insiders may hold significant token allocations or privileged information.

The FCA's proposed market abuse regime would also require trading platforms to verify lock-up arrangements and ensure compliance with these insider restrictions. This approach aligns with U.S. legislation such as the CLARITY Act, which prohibits pre-decentralization sales by insiders to mitigate market risks.

Transatlantic Collaboration on Stablecoins

Another key focus of the FCA's consultation is stablecoin regulation. With stablecoins playing a growing role in global payments, the FCA is working to establish a framework that promotes innovation while addressing risks such as redemption, reserves, and governance. The UK is also engaging with the U.S. through the Transatlantic Taskforce for Markets of the Future, which aims to align regulatory approaches and foster cross-border cooperation.

The U.S. GENIUS Act and the FCA's proposed stablecoin framework both seek to create a regulatory environment that supports innovation while maintaining financial stability. The UK is considering aligning its stablecoin rules with those of the U.S. to facilitate interoperability between GBP- and USD-backed tokens. This could position the UK as a bridge jurisdiction for stablecoin innovation, supporting both domestic and international markets.

If implemented, the FCA's proposed measures could solidify the UK's role as a leader in responsible crypto innovation. By combining a control-based framework, tailored disclosures, and transatlantic collaboration, the UK aims to create a regulatory environment that attracts investment and talent while safeguarding consumers. These steps could help the UK achieve its broader economic growth goals while setting a global standard for effective cryptoasset regulation.