UK Regulators Redefine Crypto Rules to Balance Innovation and Safety

The U.K.’s Financial Conduct Authority (FCA) has outlined plans to tailor financial regulations for the cryptocurrency sector by relaxing certain traditional finance (TradFi) requirements while tightening rules on cyber risks and operational resilience. According to a Financial Times report, the FCA published a consultation paper on September 17, 2025, aiming to create a regulatory framework that reflects the unique characteristics of cryptoassets. The move follows a broader effort to bring crypto firms into the FCA’s formal oversight by 2026.

The FCA’s executive director for payments and digital finance, David Geale, emphasized the need for a nuanced approach, stating that applying traditional financial rules directly to crypto firms is “ineffective.” The regulator intends to reduce the intensity of requirements for senior management, systems, and controls, as crypto companies are considered less systemically risky than banks or investment platforms. Additionally, the FCA plans to eliminate mandatory cooling-off periods for crypto customers due to the fast-moving nature of crypto markets and the decentralized structure of blockchain technology, which does not require intermediaries.

The consultation paper also explores how the FCA’s Consumer Duty—a regulatory obligation for financial firms to deliver good outcomes for consumers—could apply to crypto firms and activities. This includes assessing whether crypto-related complaints can be referred to the Financial Ombudsman Service. Geale noted that the proposals aim to reduce consumer harm and foster trust in the sector. A cost-benefit analysis in the paper estimates that applying these rules would cost firms £92.6 million annually but would result in £130 million in benefits to consumers through reduced losses and scams.

The FCA’s approach is part of a broader shift in the U.K.’s regulatory landscape, with the government signaling a commitment to innovation in digital assets. On May 3, 2025, the FCA introduced rules to prevent regular consumers from using credit cards or other borrowed funds to purchase cryptocurrencies like bitcoin. The regulator also plans to strengthen rules against financial crime and cyber threats, reflecting the sector’s evolving risk profile.

Parallel to the FCA’s actions, the U.K. and U.S. are deepening cooperation on crypto regulations, with stablecoins and digital securities sandboxes at the forefront of discussions. U.K. Chancellor Rachel Reeves and U.S. Treasury Secretary Scott Bessent recently discussed aligning regulatory approaches, a move seen as critical for attracting cross-border investment and fostering a competitive environment for crypto firms. The talks involved representatives from Coinbase, Circle, Ripple, and major banks like Barclays and Citi.

However, regulatory proposals face pushback, particularly regarding the Bank of England’s suggested caps on stablecoin holdings. The central bank is considering limiting individual and business holdings of “systemic” stablecoins to between £10,000 and £20,000 and £10 million, respectively. Critics argue these measures could stifle innovation and drive business away from the U.K. to more accommodating jurisdictions. The FCA and Treasury are expected to address such concerns in upcoming consultations, aiming to balance financial stability with regulatory flexibility.

As the U.K. seeks to solidify its position as a global hub for digital assets, the FCA’s evolving approach reflects a careful balancing act between fostering innovation and safeguarding consumer interests. The regulator’s focus on tailored crypto rules and transatlantic cooperation signals a shift toward a more structured and inclusive digital finance ecosystem.