By Arun Srivastava and Nina Moffatt, fintech and regulation partners at Paul Hastings

2025 is poised to be a watershed moment for crypto firms operating in the UK. With the UK Financial Conduct Authority (FCA) recently publishing its roadmap for crypto regulation and the sector energised by the prospect of a firm advocate for cryptocurrency in the White House, firms face a future where running like traditional securities firms may become a necessity rather than a choice.[1]

The FCA’s latest roadmap is set to bring in a host of new rules around capital requirements, insider trading, and execution, with the regime going live in 2026. The FCA has also now implemented parts of their Roadmap, potentially in response to the quicken pace in the US, by publishing their first proposals for new regulations in Discussion Paper DP24/4. Operational shifts to comply mean that costs may be driven up significantly, underscoring the need for strategic planning and investment in regulatory readiness as the industry gears up for the new year.

The FCA’s vision signals a shift from the current anti-money laundering (AML)-focused regime to a more comprehensive framework that will provide the full spectrum of regulatory oversight. The FCA has said that it intends to shape a cryptoasset marketplace which is sustainable, robust, and trusted which in turn will promote long-term investment and innovation in the UK and is encouraging the industry to actively participate in the process and share expertise which help shape these new rules.

For crypto firms, preparation must begin now, as failing to adapt in a timely manner may restrict them from activity in one of the world’s major financial hubs.

What are the FCA’s timelines?

The FCA’s roadmap provides a useful insight into the areas and activities it will be consulting in the next 18 months. While the FCA has already published a Discussion Paper on regulating stablecoins in November 2023, shortly after publication of its roadmap, the FCA has published another Discussion Paper on regulating cryptoassets. This is being used to inform the development of FCA rules for cryptoasset admissions and disclosures and cryptoasset market abuse – these are areas which the FCA believes are crucial to improving the integrity of crypto markets and helping investors make informed decisions. The FCA is asking for comments by 14 March 2025.

These will be followed by several additional discussion and consultations papers in 2025 focusing on lending, staking, prudential matters, custody, consumer duty, conduct standards, disclosures and governance.

The roadmap is expected to be a huge turning point for the UK crypto landscape, having highlighted the regulator’s ambition to push forward plans and embrace a crypto culture.

Although the timelines and rule exact changes are yet to be revealed, the implications are already clearly significant, requiring effective planning and preparation.

Earlier statements from the UK Government on the new regime have suggested at eliminating the flexibility previously afforded to offshore crypto businesses through potential offshore licencing arrangements. If this change goes ahead, firms will either have to comply fully with UK regulations or operate entirely outside its jurisdiction. Firms both in the UK and outside of it, must be ready for a new regulatory environment that demands compliance and clarity of operation.

All crypto businesses operating in the UK will need to secure a new license under the new FCA framework. Existing firms are likely to benefit from some form of transitional grace period to align operations with the new requirements, but new entrants will have no such luxury. These new firms will need to apply and comply with a broader spectrum of compliance and operational requirements before entering the market.

The UK is an important market for crypto activity, and the regulatory bar is already high. For firms, it will be critical to factor in the costs and investments required to achieve compliance with new rules. Neglecting this could lead to operational delays or barriers to market entry, undermining long-term growth.

How does the FCA framework compare to previous plans for UK crypto?

The FCA roadmap somewhat parallels the EU’s Markets in Crypto-Assets Regulation (MiCA), set to come into force in January 2025. Both aim to bring crypto into the fold of mainstream financial services regulation, but navigating both markets will be a challenge.

For crypto firms operating across jurisdictions, the challenge lies in aligning their compliance strategies. A pragmatic approach might be to prioritise MiCA first – given its earlier enforcement date – before mapping over compliance efforts to the UK’s requirements. However, firms must account for the requirements to have physical substance in both the UK and EU as well as differences in scope and jurisdictional nuances, ensuring that systems and processes can adapt to each regulatory framework seamlessly.

A shifting landscape in the US

Across the Atlantic, the landscape for crypto diverges significantly. Unlike the UK and EU, the US has yet to establish a comprehensive legal framework for crypto assets. Instead, the sector has been shaped by piecemeal enforcement actions, often characterised by aggressive crackdowns and a lack of clarity. This regulatory ambiguity has left crypto firms grappling with uncertainty and mistrust in US markets, compounded by cultural friction between the crypto community and US regulators.

The upcoming Republican administration, however, could signal a shift in tone. The new government is expected to adopt a more pro-crypto stance, however the exact impact of new legislation remains unknown. While enforcement will remain a part of the landscape, clearer laws and a more supportive regulatory environment could reduce fear among crypto businesses considering the US as a target market. However, much like in the UK and EU, the industry will need certainty and a cohesive framework to achieve sustainable growth.

Action must be taken now

Entering the new year, the magnitude of changes required to comply with shifting regulations in the UK and further abroad, will mean acting now is essential. Building resilient operational models, revising governance practices, and preparing for potentially heightened territorial restrictions are not just prudent steps but essential for survival.

For crypto firms, the key to navigating change lies in early preparation, strategic prioritisation, and adaptability to jurisdictional differences. As a new dawn looms, the evolving regulatory landscape promises both challenges and opportunities for those ready to meet the moment. Firms that act now will be best positioned to thrive in the new era of global crypto regulation.

[1]https://www.fnlondon.com/articles/uk-crypto-firms-face-capital-insider-trading-rules-under-fca-crackdown-50b99513