What has happened?

Just a few days after Tulip Siddiq MP announced intentions for government to introduce cryptoasset legislation in the new year—including rules covering stablecoins and staking services (please see here for further details)— on 26 November 2024, the FCA published a number of communications relating to its approach to developing the future cryptoassets regime for the UK, including:

• the results of its latest research on UK consumers’ cryptoasset holdings, and attitudes towards cryptoassets;
• a blog post which outlines the feedback gathered during the series of roundtables held by the FCA earlier this year with industry (such as exchanges, banks, trading firms, blockchain analytics companies, law firms, industry associations and universities), government officials, academics and other regulatory authorities including HM Treasury, the Bank of England, and the US Securities and Exchange Commission; and
• an indicative roadmap setting out an estimated timeline for the developments of the UK’s cryptoasset regime (the “Roadmap”).

For completeness, with respect to existing rules on financial promotions relating to cryptoassets, the FCA on the same day also published further clarifications regarding its expectations on regulated/registered firms providing on/off ramp services to unregistered cryptoasset firms which may be illegally making promotions to UK consumers.

FCA findings on UK cryptoasset market

The results of the FCA’s research show that awareness and interest in cryptoassets have risen among UK consumers compared to previous years, and both the average value of cryptoasset holdings as well as the percentage of UK adults holding cryptoassets have increased. 12% of UK adults now own some form of cryptoasset, up from 10% in 2022, indicating the UK cryptoasset market now has 7 million consumers engaged.

Other notable findings include the following:

• The incorrect perception among cryptoasset users that they would be compensated if they lost their cryptoasset holdings significantly increased between 2022 and 2024 (from 10% to 20%), with a similar increase also being seen regarding the ability to raise a complaint to the FCA about their cryptoasset holdings (from 21% to 32%).
• The findings reflect a growing interest in cryptoasset staking activities – just over a quarter (27%) of cryptoasset users surveyed reported participating in staking activities in the last 12 months.
• In terms of cryptoasset storage, a significant majority of cryptoasset users (72%) reported using the exchange they purchased cryptoassets from (an increase from 59% in 2021). Safety and security was reported as the most important factor that users took into consideration, while other factors such as ease of access, cost and privacy appear to be of much lower importance.
• Both cryptoasset users and non-cryptoasset users say that they would be more likely to invest (or invest further) in cryptoassets if the sector was more regulated in the UK – this is despite 58% of cryptoasset users reporting that they would be happy to continue to trade in an unregulated marketplace.
• Cryptoasset adverts are continuing to become more prevalent. In 2020, 27% of people had seen or heard an advert for cryptoassets. This has risen to 38% in 2024, continuing the trend of increases in every edition of the survey. Social media is the most common place for people to see cryptoasset adverts (44%), followed by online advertising.

Overall, the FCA considers that there is a need for “clear regulation which supports a safe, competitive, and sustainable crypto sector in the UK”.

The FCA’s summary of its roundtables further outlines its findings in relation to specific issues which are intended to inform the FCA’s approach to developing the relevant rules:

• Admissions and disclosures: The FCA highlighted the importance of proper disclosures to investor protection, by allowing consumers to make informed financial decisions. Roundtable participants welcomed the idea of an industry-led admission and disclosures regime which would be proportionate and tailored (e.g. institutional vs retail use cases). Decentralised cryptoassets (i.e. with no central issuer) pose a particular challenge for cryptoasset trading platforms which can only rely on public information to comply with disclosure and due diligence requirements.
• Market abuse regime: The FCA noted the desire to achieve in cryptoasset markets the same outcomes as the traditional UK market abuse regulation. Roundtable participants discussed issues around international data privacy laws in terms of cross-border sharing of market abuse information. Again, decentralized cryptoassets posed particular challenges, with participants noting the difficulties of applying traditional rules for disclosures of important information.
• Trading platforms and intermediaries: This included topics such as location policy, operational resilience requirements, conflicts of interest and matching and order execution. Roundtable participants welcomed the distinction between retail and wholesale in a future regime (e.g. in terms of disclosures and customer protections, and other areas),highlighted the importance of international standards to support growth, discussed the meaning of “best execution” for clients’ orders, and noted potential conflicts of interest issues where cryptoasset exchanges issue their own tokens or carry out additional activities such as brokerage and market making.

What should we expect from the FCA, and when?

The Roadmap sets out the following milestones:

• Q4 2024: The FCA will seek feedback via a discussion paper on the regimes relating to (1) admissions and disclosures, and (2) market abuse.
• Q1/Q2 2025: The FCA expects to publish consultations on stablecoins, custody, and prudential requirements – this is likely to build on the learnings from the FCA’s discussion paper (DP23/4) issued in 2023. This will include the introduction of a new prudential sourcebook (the “Prudential Sourcebook”), covering capital, liquidity and risk management requirements. Additionally the FCA expects to publish a discussion paper on trading platforms, lending, staking, and other intermediary activities.
• Q3 2025: Consultations on conduct and firm standards for all Regulated Activities Order activities are expected, as well as further consultations building on from the Q4 2024 discussion papers (i.e. on admissions and disclosures, and market abuse).
• Q4 2025 / Q1 2026: The FCA expects to consult on rules relating to trading platforms, intermediation, lending and staking and on outstanding elements of the Prudential Sourcebook.
• 2026: All final policy statements are expected to be published over the course of 2026, followed by the regime going live. The Roadmap does not specify a transitional period.

The FCA is seeking feedback on a wide range of issues within an ambitious timeframe as set out in the Roadmap, in order to enable the development of a comprehensive and robust regulatory framework for the cryptoasset sector. However, it is worth noting that in practice, the timelines are not guaranteed — additionally, the FCA’s Roadmap does not give an indication of the expected timings for implementations of any rules to be developed by the FCA following the feedback gathered during the series of consultations. Helpfully, Tulip Siddiq MP’s announcement indicated that the government is aiming to engage with industry on draft legal provisions for the cryptoasset regime as early as possible in 2025. Ultimately, in order to have a new cryptoasset framework, the government will need to make a legislative intervention, in this case laying a statutory instrument before Parliament. This is subject to parliamentary time, as well as the bill progressing through Parliament in a timely manner.

This article is for guidance only and is a non-exhaustive summary only of certain aspects of the points discussed and should not be relied on as legal advice in relation to a particular transaction or situation.

Please contact your normal contact at Hogan Lovells if you require assistance or advice in connection with any of the above.