New UK Cryptoasset Regime: HM Treasury Proposes Amendments To Cryptoasset Regulations

Quick read

HM Treasury has published a draft statutory instrument (SI) - the Financial Services and Markets Act 2000 (Cryptoassets) (Amendment) Regulations 2026 - amending the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026 (Cryptoasset Regulations). 

The draft SI is accompanied by a policy note setting out the government's policy intent, which stems from its plan to modernise UK payments services legislation and ensure that the framework can facilitate innovation, including tokenised payments such as stablecoin (see our blog post on the government's Financial Services Growth and Competitiveness Strategy for more information).

The central aim of the proposed amendments is to avoid the need, ahead of the government's upcoming payments services reforms, for firms seeking to provide payments services with UK qualifying stablecoin (UKQS) to obtain authorisation for cryptoasset dealing and arranging activities in preparation for the 25 October 2027 go-live date for the new UK cryptoasset regulatory regime.

In our blog post, we consider the proposed amendments.

Proposed carve-out for payments with UK-issued qualifying stablecoin

The headline measure of the draft SI is the carving out of UKQS from the regulated activities of dealing (as principal or agent) in qualifying cryptoassets, and arranging deals in qualifying cryptoassets.

The policy note explains that, as part of the government's upcoming payment services reforms, it intends to rationalise the dealing and payments perimeters for stablecoins. Under the Payments Forward Plan (developed by HM Treasury, the Bank of England, the FCA and the PSR), the government will be consulting on these reforms in Q2 2026. It is aware that the current legislative position means that firms seeking to provide payment services with UKQS are likely to fall within the perimeter for dealing and arranging under the new UK cryptoasset regulatory regime. The proposal to amend the Cryptoasset Regulations would avoid the imposition of an additional burden on these payments firms as it means they will not need to apply for authorisation to carry on these activities under the new cryptoasset regulatory regime before completion of the payments services reforms. 

In this context, the policy note highlights the following:

• There are no plans to permanently remove UKQS-related lending and borrowing activities from the regulatory perimeter. The government does not consider this to be appropriate. Under the draft SI, lending and borrowing activities involving UKQS will remain within scope of the cryptoasset dealing activities, ensuring the FCA is able to address associated consumer risks through rules. The government acknowledges that this approach could create frictions for the use of UKQS in collateral arrangements and it will seek to mitigate any barriers as part of the final SI. It intends to seek industry input on how best to achieve this.
• There is potential for frictions to remain for certain cross-border stablecoin payments, depending on the structuring of transactions, as a result of overseas-issued stablecoin remaining within the cryptoasset dealing and arranging perimeter. It is unclear whether any such barriers would be prohibitive and the government will explore this further with industry. 
• The government acknowledges that its proposal creates an increased consumer detriment risk during the interim period until UKQS are brought within the regulated payments perimeter (i.e. under its payments services reforms). However, where payments firms safeguard, or arrange for another to safeguard, cryptoassets (including UKQS) on behalf of another, they will still need to apply for permission for the cryptoasset safeguarding regulated activity. The draft SI does not affect this. Although firms should note that government will propose in its payments services reform consultation that safeguarding in the course of providing payment services is an activity that most appropriately fits under the payments regime.
• The requirement to hold cryptoasset safeguarding permissions could give rise to outstanding frictions for some UKQS payments firms during the interim period. But the government considers its approach to be balanced in that it ensures these firms are brought within the FCA's supervisory remit before the payments services reforms, and helps to protect consumers. It intends to work with the FCA to deliver a streamlined transition into the new payments regime once it is completed. 

The draft SI also addresses an unintended ambiguity in the Cryptoasset Regulations. The settlement exclusion from the cryptoasset safeguarding activity to firms holding cryptoassets "temporarily to facilitate the settlement of a transaction" was intended to be for the purpose of settling trades. However, the government has identified the possibility that, on its current wording, UKQS payments firms could be taken out of scope of the safeguarding activity. The draft SI therefore clarifies that the exclusion applies only where the activity is ancillary to dealing or arranging, and not to the holding of UKQS in the course of providing payments services.

Further proposed changes

The draft SI also includes certain minor consequential changes, in support of UKQS stablecoin uses, together with additional proposals. The government explains in the policy note that it has taken on board industry feedback on amendments that can be made to support the goal of achieving a competitive UK cryptoasset regulatory regime. In summary:

• Financial promotions – the government proposes to align the financial promotions regime perimeter under Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO) with the UKQS dealing and arranging carve-out. This means that the financial promotion restriction will not apply to communications relating to transactions involving UKQS (and no other cryptoassets), except for lending and borrowing. The regulated activity of issuing a qualifying stablecoin will also be added as a new controlled activity to the FPO.
• Collective investment schemes (CIS) and alternative investment funds (AIF) – the provisions in the Cryptoasset Regulations that carve out stablecoin backing assets from the CIS and AIF frameworks will be brought into force early (30 days after the date on which the draft SI is made) to avoid barriers to stablecoin adoption for different use cases ahead of 25 October 2027.
• Proprietary trading and market making – to address the competitive disadvantage facing UK-based firms relative to their overseas counterparts, the draft SI excludes from the dealing in cryptoassets as principal regulated activity any activity not carried on for the purpose of providing a service to another person.
• Central securities depositories (CSDs) – the draft SI extends the existing exemption for CSDs and nominee companies under the Financial Services and Markets Act (Regulated Activities) Order 2001 (RAO) from requiring safeguarding permissions, to cover specified investment cryptoassets, helping to avoid barriers to UK innovation with tokenised securities.

Next steps

HM Treasury will engage with industry on its policy proposals and the draft SI to get feedback over the coming weeks. The deadline for written submissions is 22 May 2026.

Please contact us if you would like to discuss this or any other recent UK cryptoasset policy developments, which we are tracking. Our latest blog posts are:

• A blog post considering the FCA's consultation on proposed perimeter guidance on cryptoasset activities (CP26/13). 
• A blog post outlining the current policy position and practical actions for firms to prepare for the FCA authorisation process.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.