In 2024, approximately 7 million UK adults – 12% of the population – owned cryptoassets, a sharp rise from 4% in 2021, establishing the UK as a global leader in cryptocurrency adoption¹. This surge, coupled with widespread consumer misconceptions and rising fraud risks, has intensified the need for robust regulation. HM Treasury’s draft legislation, published in April 2025, and the Financial Conduct Authority’s (FCA) consultation papers, released on 28 May 2025, mark a pivotal moment in shaping the UK’s cryptoasset landscape.

For compliance professionals in financial services, these developments demand strategic and operational adjustments to align with a rapidly evolving regulatory framework.

This article explores the UK’s crypto regulatory journey, its implications for firms, and the challenges of FCA oversight without clear HM Treasury guidance, offering actionable insights to ensure compliance and seize opportunities in this dynamic market.

The UK’s Crypto Regulation Timeline: Where Are We Now?

The UK’s path to comprehensive cryptoasset regulation has been deliberate, evolving from a two-phase plan in 2023—prioritising fiat-backed stablecoins before broader cryptoassets—to a unified regime under the Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025, published by HM Treasury on 29 April 2025². This draft legislation integrates cryptoassets into the Financial Services and Markets Act (FSMA) framework, covering activities such as operating trading platforms, providing custody services, dealing, arranging transactions, and issuing fiat-backed stablecoins. The feedback period closed on 23 May 2025, with final rules expected by year-end, pending parliamentary approval.

The FCA is tasked with detailed rulemaking, building on its Crypto Roadmap from November 2024³. On 28 May 2025, the FCA released two consultation papers seeking industry input on stablecoin management (backing assets and redemption processes) and crypto custody rules⁴. Further consultations are planned for Q3 2025 on conduct and firm standards, followed by Q4 2025 or Q1 2026 on trading platforms and staking. This timeline reflects the government’s commitment to a fully regulated crypto sector by 2026, setting the stage for firms to adapt to stringent compliance requirements. Understanding the drivers behind the UK’s crypto adoption is critical to appreciating the urgency of these regulations.

Why the UK Leads in Crypto Ownership: Opportunities and Challenges

The UK’s emergence as a global leader in cryptocurrency ownership is driven by a unique combination of cultural, technological, and economic factors, but it also reveals significant challenges that regulation must address. In 2024, 12% of UK adults, approximately 7 million people, held cryptoassets, compared to 20% investing in traditional stocks⁵. Awareness of crypto is nearly universal, with 93% of UK adults familiar with digital assets, and the average holding per person is approximately £1,842⁶. Younger generations, particularly millennials and Gen Z, view crypto as an accessible entry point to financial markets, bypassing the complexities of traditional investments. London’s status as a global fintech hub has further fuelled this growth, attracting crypto startups and fostering an environment of innovation.

However, this rapid adoption comes with notable risks, as highlighted by industry experts at the Association of Professional Compliance Consultants (APCC) conference in April 2025⁷. A significant 33% of UK adults mistakenly believe cryptoassets are protected by the FCA, and 10% invest without due diligence, underscoring a critical education gap⁸. The FCA’s cautious approach, approving only 14% of crypto firm applications, reflects the lack of clear HM Treasury guidance, creating uncertainty for firms navigating compliance⁹. The absence of a regulatory distinction between major tokens like Bitcoin and smaller coins further complicates compliance efforts. Additionally, the UK holds £4 billion in Bitcoin, the third-largest globally, yet lacks a strategy to leverage these assets, unlike the US’s Strategic Bitcoin Reserve, which is positioned as a hedge against inflation and debt shocks¹⁰.

These challenges highlight the need for a balanced regulatory approach that supports the UK’s crypto leadership while addressing consumer risks. The APCC panel called for clear, top-down policy from HM Treasury, cohesive frameworks to replace patchwork rules, and efforts to use crypto as a gateway to improve financial literacy, particularly among younger generations.

For firms, the high adoption rate and associated risks present both an opportunity to guide clients through a regulated landscape and a challenge to address consumer misconceptions. The regulatory framework outlined below aims to tackle these issues, but its success depends on effective implementation by firms and regulators.

Key Features of the New Regulatory Framework

The 2025 regulatory framework introduces a comprehensive set of rules to align cryptoassets with traditional financial services, addressing the risks highlighted by high adoption and consumer misconceptions. HM Treasury’s draft legislation designates several activities as regulated, including operating crypto trading platforms, providing custody services, dealing as principal or agent, arranging transactions, issuing fiat-backed stablecoins (classified as securities rather than e-money), and staking services, with further details to be clarified in upcoming FCA consultations¹¹. The territorial scope is broad: non-UK firms serving UK retail clients must obtain FCA authorisation, though exemptions apply for business-to-business institutional dealings. Overseas stablecoins used in UK payment chains may require oversight as “payment arrangers,” ensuring compliance with domestic standards.

To protect consumers, the framework introduces robust transparency requirements, operational resilience standards, and market abuse regimes to combat fraud and scams. The FCA’s new CRYPTOPRU prudential sourcebook will enforce capital, liquidity, and risk management standards, aligning crypto firms with traditional financial institutions¹².

These measures aim to create a secure, competitive market, but they also impose significant compliance burdens on firms. Understanding these requirements is crucial for compliance professionals to prepare their organisations for the operational and strategic shifts ahead.

Implications for Firms: Compliance Challenges and Opportunities

The new regulations will profoundly impact cryptoasset firms, particularly those targeting UK retail clients. By 2026, firms must obtain FCA authorisation or cease operations, a daunting prospect given the FCA’s 14% approval rate for crypto applications¹³. Compliance with the CRYPTOPRU sourcebook will require substantial investments in capital, systems, and risk management, especially for custody and staking services. Non-UK firms serving UK retail clients face additional hurdles, as they must navigate the FCA’s authorisation process, increasing operational costs¹⁴.

Despite these challenges, the regulations present strategic opportunities. Clear rules could reduce capital costs for compliant firms and attract institutional investors, enhancing market credibility. The growing demand for RegTech solutions, such as automated compliance tools for custody reconciliation and market abuse monitoring, provides firms with scalable ways to meet regulatory.

By addressing the education gap highlighted at the APCC conference and leveraging the UK’s crypto adoption, firms can position themselves as leaders in a regulated market. However, the FCA’s ability to implement these rules effectively depends on clear HM Treasury guidance.

How Regulation Benefits the UK Financial Sector

The 2025 regulatory framework offers substantial benefits for the UK’s financial services industry, addressing the risks of high crypto adoption and consumer misconceptions.

Robust consumer protection measures will reduce fraud, scams, and misconceptions, particularly among the 33% of UK adults who mistakenly believe crypto is FCA protected¹⁵. By aligning cryptoasset oversight with traditional finance (e.g. market abuse and disclosure regimes), regulation can enhance investor confidence.

Furthermore, a well-regulated sector will enable the UK to compete with global leaders like the EU (under MiCA) and the US (via its Strategic Bitcoin Reserve). A stable regulatory environment also promises to spur fintech investment and job creation, furthering the government’s Plan for Change economic agenda¹⁶.

For compliance professionals, this reinforces the importance of early preparation and strategic planning.

Actionable Steps for Compliance Professionals

To navigate the evolving regulatory landscape, compliance professionals should take proactive measures:

• Prepare for Authorisation: Review the FCA’s consultation papers on stablecoins and custody (released 28 May 2025) and submit feedback by the deadlines to influence rulemaking. Assess operational readiness for CRYPTOPRU requirements, including capital and risk management standards.
• Enhance Systems: Invest in RegTech platforms like Leo RegTech for real-time compliance and market abuse monitoring. Strengthen AML and KYC frameworks in line with FCA expectations.
• Educate Stakeholders: Inform clients about regulatory changes and risks, such as the lack of Financial Services Compensation Scheme (FSCS) protection for cryptoassets. Advocate for clear HM Treasury guidance to streamline compliance efforts.

These steps will help firms capitalise on the UK’s crypto leadership while addressing the regulatory challenges.

How Leo RegTech can help

The UK’s 2025 cryptoasset regulations, driven by HM Treasury’s draft legislation and the FCA’s consultation papers, mark a turning point for financial services. In this complex environment, a strong RegTech partner is not a luxury—it’s essential.

That’s where Leo comes in. Leo RegTech offers a cutting-edge platform designed to help firms navigate the intricacies of financial regulations, including those related to cryptoassets. Whether you need to ensure your financial promotions meet the FCA’s stringent requirements or manage client categorisation effectively, Leo provides the tools and support you need to stay ahead of the curve.

Leo’s Financial Promotion Review report helps ensure that promotional materials are configured according to your standards and shared with third-party issuers for greater oversight, as well as then distributed exclusively to the intended audience. Leo also makes sure your staff can validate promotions and that relevant disclaimers are included, some of which are content-dependent, and it helps you verify the compliance of promotional content against current regulations or as defined by your outside counsel through your own configuration.

By obtaining MLR approval, firms are required to implement robust anti-money laundering (AML) and know-your-customer (KYC) procedures to mitigate the risk of financial crime and ensure the integrity of the crypto asset market. With Leo’s CDD Solution, you can streamline client onboarding with configurable KYC and CDD questionnaires. Our Solution integrates background checks (e.g. Sanctions/PEPs/Adverse Media) alongside ID Verification. It automatically flags any issues and enables efficient resolution tracking with the Remedial Action feature.

Equip your business to meet 2025’s regulatory demands with confidence.

Book a demo today to learn how Leo can help your firm thrive in the age of crypto regulation.

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1. https://www.fca.org.uk/publication/research-notes/cryptoasset-consumer-research-2024-wave-5.pdf
2. https://www.gov.uk/government/publications/regulatory-regime-for-cryptoassets-regulated-activities-draft-si-and-policy-note / https://www.gov.uk/government/news/new-cryptoasset-rules-to-drive-growth-and-protect-consumers
3. https://www.fca.org.uk/publication/documents/crypto-roadmap.pdf
4. https://www.fca.org.uk/news/press-releases/fca-seeks-further-views-stablecoins-and-crypto-custody
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7. APCC Spring Conference 2025 – Harvey Knight & Haider Farooq – Withers Worldwide, & Heather O’Gorman, fscom: Regulating Crypto Panel
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12. https://www.fca.org.uk/publication/consultation/cp25-15.pdf
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