This article first appeared in Thomson Reuters Regulatory Intelligence.

The UK authorities have recently made a number of announcements that reaffirm and further clarify their intentions with digital assets.

On November 21, Tulip Siddiq, the economic secretary to HM Treasury, gave a speech on the government’s approach to tokenisation and regulation at the City & Financial Tokenisation Summit. Shortly afterwards, the Financial Conduct Authority (FCA) published important updates on its work in this area.

Reassurance and clarity
Although the Labour Party stated its ambition to make the UK a global hub for securities tokenisation when it published its plan for financial services ahead of the general election being called, the lack of further announcements since it took office was starting to cause some nervousness in the market. This news has therefore provided welcome reassurance and clarity.

The new government seems to have adopted the view that leaning into emerging and disruptive technologies is essential to maintaining the UK’s position as a leading financial services hub. Siddiq confirmed that she will actively support this process.

As she reminded her audience, two important new initiatives have got this off to a good start. First, the Digital Securities Sandbox opened in September. This is designed to help the sector adopt distributed ledger technology (DLT) across capital markets by making temporary modifications to legislation and regulator rules, allowing for novel platforms through which securities can be created, traded and settled on distributed ledgers.

Secondly, Rachel Reeves, the Chancellor of the Exchequer, has subsequently announced in her Mansion House speech that the government will use the sandbox to issue a Digital Gilt Instrument called DIGIT. This not only demonstrates the government’s support for DLT innovation but also allows it to explore first-hand the benefits that DLT could bring to the debt issuance process.

Regulation of cryptoassets
What was most useful, however, was that Siddiq confirmed that the proposals for the regulation of cryptoassets that were published by HM Treasury in October 2023 still stand and the government intends to implement them in full. The October 2023 paper focussed on phase 2 of crypto regulation, which involved extending the existing regulatory regime for traditional investments to cryptoassets and creating regimes for both public offers and market abuse in relation to cryptoassets.

There seems to be a change in the approach to the regulation of stablecoins. The plan had originally been to introduce crypto regulation in the UK in two phases, with the issuance and custody of stablecoins being regulated first as phase 1 followed by the broader phase 2, but these will now be implemented together in a single phase. In addition, the government has decided against bringing stablecoins into UK payments regulation at this time.

Siddiq said in her speech that this approach was developed in the context of propositions that could scale very quickly in the retail space, while the government feels that the market has evolved more organically and now recognises that there are opportunities on the wholesale side where it is also important to allow space for innovation.

The other news that will be well-received by many crypto market participants is that Siddiq indicated, in not quite, but almost, so many words, that HM Treasury will make it clearer that staking services do not necessarily constitute collective investment schemes. It therefore seems that the authorities have been listening to at least some of the feedback from industry and it will be interesting to see whether any changes are made to other areas of concern, such as territoriality and transitional arrangements for firms that are already registered for anti-money laundering purposes.

Timing
In terms of timing, the combination of Siddiq’s speech and the roadmap published by the FCA means we now have the following estimated timelines, albeit subject to change:

• Q4 2024: a discussion paper (DP) on admission and disclosures and market abuse.
• Early 2025: HM Treasury to engage with firms on draft legislation.
• Q1/Q2 2025: (i) a DP covering trading platform rules, intermediation, lending rules, staking and prudential considerations; and (ii) a consultation paper (CP) covering rules on stablecoins, custody and prudential aspects.
• Q3 2025: (i) a CP on conduct and firm standards for all Regulated Activities Order activities; and (ii) a CP on admissions and disclosures and market abuse (to follow up on the Q4 2024 DP).
• Q4 2025/Q1 2026, a CP on trading platforms, intermediation, lending and staking, as well as the remaining material for the prudential sourcebook.
• 2026: all policy statements and final rules are expected to be published, with a period allowed after that for firms to prepare before the application gateway opens and the regime goes live.

Flurry of activity
The FCA’s latest research on consumer attitudes and behaviours toward cryptoassets perhaps explains this sudden flurry of activity: ownership is continuing to rise, with 12% of UK adults now owning cryptoassets, up from 10% in previous findings. Awareness of cryptoassets was also found to have increased from 91% to 93%.

The findings highlight the need for clear regulation that supports a safe, competitive, and sustainable cryptoasset sector in the UK, said Matthew Long, the FCA’s director of payments and digital assets. Perhaps there is also an unofficial part of the answer — something to which Siddiq alluded in her speech — in the form of renewed interest in the United States following the recent presidential election.

HM Treasury and the FCA are at pains to emphasise that they have been busy since we last heard from them, not that this was in doubt. The FCA’s blog outlines some of the main areas discussed during the FCA’s series of roundtables earlier this year and on which it has been undertaking further work since. These include:

• Admissions and disclosures: Participants in the discussions were keen on the idea of an industry-led admissions and disclosures regime that was proportionate and tailored to different, institutional and retail, business models. They also warned that compliance with some disclosure and due diligence requirements could be more challenging where cryptoassets are decentralised, and it would be necessary to rely on publicly available information.
• Market abuse regime: While the FCA acknowledges that market abuse can manifest in crypto markets in novel and distinct ways, giving rise to new challenges for firms, governments and regulators, it aims to achieve the same outcomes wherever possible when it comes to a crypto version of market abuse regulation. It is working with industry and HM Treasury to help shape an industry-led market abuse information-sharing platform.
• Trading platforms and intermediaries: The FCA aims to create a regime that puts strong systems and controls in place to enable fair, orderly, transparent and efficient trading. Topics discussed included location policy, operational resilience requirements, conflicts of interest and matching and order execution.

International standards
The FCA is also actively involved in the implementation of crypto regulatory standards via its leading role in the International Organisation of Securities Commissions.

This is important for the consistency of the global approach, something for which the industry repeatedly calls. It also supports the FCA’s desire to develop a sector that embraces innovation and is underpinned by market integrity and consumer trust, and the FCA has confirmed that it is committed to working closely with the government, international partners, industry and consumers to ensure it gets the future rules right.