The United Kingdom is positioning itself as a leading global hub for cryptoasset innovation, backed by a rapidly evolving regulatory framework designed to balance consumer protection, financial stability, and technological advancement. As of 2025, the UK’s approach to blockchain and cryptocurrency regulation reflects a comprehensive, two-phase strategy aimed at integrating digital assets into the mainstream financial system while ensuring robust oversight.
This guide provides a detailed overview of the current and upcoming legal landscape for cryptoassets in the UK, covering government policy, financial services regulation, taxation, anti-money laundering (AML) compliance, and key developments in legal clarity and innovation.
Government Stance and Definition of Cryptoassets
Strategic Regulatory Vision
The UK government has made it a strategic priority to become a global leader in cryptoasset technology and investment. This ambition was formally announced in April 2022 and reinforced through the passage of the Financial Services and Markets Act 2023 (FSMA 2023)—a landmark piece of legislation that laid the foundation for a modernized regulatory regime.
Key milestones in 2023 included:
- The enactment of FSMA 2023, which empowered regulators to introduce a phased regulatory framework for fiat-backed stablecoins and digital securities.
- The launch of the Digital Securities Sandbox (DSS) in December 2023, allowing firms to test innovative financial market infrastructure using distributed ledger technology (DLT).
- Implementation of the Travel Rule, aligning UK crypto businesses with global Financial Action Task Force (FATF) standards by requiring the collection and sharing of sender and recipient information for cryptoasset transfers.
- Expansion of the financial promotions regime to include “qualifying cryptoassets” starting October 2023.
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These developments reflect a coordinated effort by HM Treasury (HMT), the Financial Conduct Authority (FCA), and the Bank of England (BoE) to foster innovation while safeguarding market integrity and consumer interests.
Defining Cryptoassets
Under FSMA 2023, a cryptoasset is defined as:
“Any cryptographically secured digital representation of value or contractual rights that (a) can be transferred, stored or traded electronically, and (b) uses technology supporting the recording or storage of data (which may include distributed ledger technology).”
This broad definition encompasses various types of digital assets, including:
- Security tokens – Represent ownership, debt, or profit-sharing rights; treated as regulated financial instruments.
- Exchange tokens – Decentralized cryptocurrencies like Bitcoin and Litecoin, primarily used as a medium of exchange.
- Utility tokens – Grant access to specific digital services or platforms; include governance and fan tokens.
- Non-fungible tokens (NFTs) – Represent unique digital or real-world assets.
Some stablecoins may also qualify as e-money under the E-Money Regulations 2011 if they represent monetary value and are widely accepted for payments.
The FCA’s PS19/22 Guidance on Cryptoassets further clarifies how these categories interact with existing regulatory boundaries.
Central Bank Digital Currency (CBDC)
The Bank of England is actively exploring the feasibility of a digital pound, consulting with HM Treasury and publishing a joint response in January 2024. While no final decision has been made, the House of Commons Treasury Committee emphasized the need for strong privacy safeguards and thorough design evaluation before any rollout.
A potential UK CBDC would complement cash rather than replace it, aiming to enhance payment efficiency and financial inclusion. However, public trust, cybersecurity, and monetary stability remain critical considerations in ongoing discussions.
Financial Services Regulation Framework
Current Regulatory Scope
Until the full framework is implemented, most cryptoassets fall outside traditional financial regulation unless they qualify as:
- Security tokens (regulated under FSMA 2000),
- E-money tokens (regulated under EMRs), or
- Assets subject to anti-money laundering (AML) rules.
Currently, only cryptoasset businesses involved in exchange or custody activities are required to register with the FCA under AML regulations.
Proposed Two-Phase Regulatory Approach
The government plans to roll out regulation in two phases:
Phase 1: Stablecoin and Infrastructure Focus
- Regulate fiat-backed stablecoins used in payments.
- Extend oversight to payment systems using stablecoins under the Payment Services Regulations 2017.
- Empower the Bank of England to supervise systemic risks from stablecoin-based payment systems.
Phase 2: Comprehensive Cryptoasset Regulation
- Bring non-security token cryptoassets into the FSMA 2000/RAO framework.
- Regulate key activities including issuance, exchange, lending, staking, and custody.
- Cover a wide range of assets: exchange tokens, utility tokens, NFTs, algorithmic tokens, and more.
The FCA will also clarify the status of staking, potentially excluding certain models from classification as collective investment schemes (CIS). Additionally, the regulator has launched consultations on Decentralized Finance (DeFi) to assess future regulatory needs.
While Phase 1 was expected in 2024 and Phase 2 in 2025, political changes—including the July 2024 general election—are likely to delay implementation timelines.
Sales and Marketing Regulations
Financial Promotions
Since October 2023, communications promoting “qualifying cryptoassets” are subject to strict financial promotion rules unless:
- Issued by an FCA/PRA-authorised firm,
- Approved by such a firm,
- Made by an FCA-registered cryptoasset business under AML rules, or
- Covered by an exemption.
Qualifying cryptoassets are fungible, cryptographically secured digital assets excluding e-money and security tokens—effectively capturing most major cryptocurrencies.
Additional requirements include:
- Prominent risk warnings,
- No incentives to invest,
- A 24-hour cooling-off period for new investors,
- Personalized risk pop-ups,
- Client categorization and appropriateness assessments.
Despite a compliance extension until January 2024, the FCA found widespread failures in August 2024 during its review of crypto firms’ adherence to these rules.
Violations are criminal offenses punishable by fines or up to two years in prison. Contracts entered into based on unauthorized promotions may be unenforceable.
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Prospectus Requirements
Public offerings of transferable securities—including certain security tokens—require an approved prospectus under UK law. Exemptions apply for offers to qualified investors or fewer than 15 people.
The government proposes extending similar disclosure rules to non-security token cryptoassets via the new Designated Activities Regime (DAR) introduced under FSMA 2023. Trading venues listing unissued assets like Bitcoin would assume issuer responsibilities.
Consumer Protection & Advertising Standards
Crypto promotions must comply with:
- The CAP Code enforced by the Advertising Standards Authority (ASA),
- Consumer rights laws,
- Electronic commerce regulations.
Ads must clearly state:
- Cryptocurrencies are unregulated in the UK,
- Profits may be subject to capital gains tax (CGT),
- Investment values are volatile.
Misleading claims or downplaying risks can result in enforcement action.
Taxation of Cryptoassets
There is no standalone tax regime for cryptoassets. HM Revenue & Customs (HMRC) applies existing tax principles based on asset type and usage.
For Individuals
- Capital Gains Tax (CGT): Applies to profits from buying/selling crypto held as investments.
- Income Tax (IT): Applies if trading constitutes a business activity.
- Employment income: Crypto received as salary is taxed as income with National Insurance contributions (NICs).
Disposals include selling, exchanging, gifting, or spending crypto.
UK tax residents are taxed on global crypto gains regardless of where assets are held. The situs is determined by the owner’s tax residency—not storage location.
HMRC uses “nudge letters” to prompt undeclared holdings and will receive enhanced data via the OECD’s Crypto Asset Reporting Framework (CARF) from 2026 onward.
For Businesses
- Profits from crypto trading are subject to Corporation Tax (CT).
- Gains from non-trading disposals are treated as chargeable gains.
- Crypto payments for goods/services incur VAT, though token transfers themselves do not.
- Employee crypto compensation triggers PAYE and NICs if deemed a "readily convertible asset."
Staking and lending returns are not treated as interest but assessed based on revenue vs. capital nature.
Anti-Money Laundering & Travel Rule Compliance
All Cryptoasset Exchange Providers (CEPs) and Custodian Wallet Providers (CWPs) must register with the FCA and comply with AML obligations under the Money Laundering Regulations 2017 (MLRs).
Key duties include:
- Risk assessments,
- Customer due diligence,
- Record keeping,
- Suspicious activity reporting,
- Compliance with the Travel Rule for transaction data sharing.
Even unregulated firms must comply if they conduct relevant activities. Peer-to-peer exchanges and ICO issuers are included.
The Joint Money Laundering Steering Group (JMLSG) provides sector-specific guidance to help firms meet these standards.
Legal Clarity: Digital Assets Bill & Jurisdictional Guidance
Law Commission’s Digital Assets Bill
In June 2023, the Law Commission recommended recognizing data objects as a third category of personal property—distinct from physical possessions or legal claims. This would formally recognize digital assets like NFTs and tokens as property under English law.
A revised Draft Digital Assets Bill was published in July 2024, proposing that digital assets cannot be denied property status simply because they don’t fit traditional categories.
Control over a data object depends on factual ability to use, transfer, and exclude others—not legal title—aligning with blockchain’s decentralized nature.
UK Jurisdiction Taskforce (UKJT)
The UKJT affirmed in 2019 that:
- Cryptoassets are property,
- They can be owned, transferred, and secured,
- Smart contracts are legally binding.
Subsequent legal statements confirmed English law supports digital securities and insolvency frameworks for cryptoassets.
Mining & Staking Regulations
Crypto mining—such as Bitcoin’s proof-of-work—is not directly regulated but may generate taxable income. Ethereum’s shift to proof-of-stake (PoS) has raised regulatory questions around staking services.
When users pool assets via validator service providers, this may constitute a collective investment scheme (CIS) under FSMA 2000. HM Treasury is prioritizing clarification on this issue.
Estate Planning & Inheritance
Cryptoassets are treated as property for inheritance tax (IHT) purposes. Estates exceeding £325,000 face a 40% IHT rate. Executors must access private keys; otherwise, assets may be lost permanently.
Frequently Asked Questions (FAQ)
What types of cryptoassets are regulated in the UK?
Security tokens and e-money tokens are currently regulated. From 2025 onward, exchange tokens, utility tokens, NFTs, and stablecoins will fall under expanded oversight under Phase 2 of the regulatory framework.
Do I need to pay tax on cryptocurrency gains?
Yes. Individuals pay Capital Gains Tax on profits from disposing of crypto held as investments. Frequent traders may be subject to Income Tax instead.
Are NFTs regulated in the UK?
NFTs are not currently regulated unless they function as security tokens. However, they will be included in broader consumer protection and financial promotion rules starting in 2025.
Can I advertise cryptocurrency in the UK?
Yes, but only if you follow FCA rules: include risk warnings, avoid incentives, allow cooling-off periods, and ensure messages are approved by an authorized entity.
Is staking considered a financial service?
Staking via third-party providers may be classified as a collective investment scheme. The FCA is developing guidance to clarify which models require authorization.
How does the UK handle cross-border crypto transactions?
The Travel Rule requires UK-based exchanges to collect and share sender/receiver data for transfers over £1,000. International compliance is enforced through FATF standards.
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