Contribution
My Lords, financial services are a key driver of growth in the UK. Embracing innovation is essential to sustaining the UK’s position as a leading global financial centre. As noble Lords will be aware, crypto assets’ usage has grown rapidly in recent years, and crypto assets are increasingly intertwined with traditional financial services. It is important, therefore, that the UK has a clear, proportionate and robust regulatory framework to oversee this emerging market.
This instrument establishes a comprehensive regime for crypto assets within the Financial Services and Markets Act architecture, ensuring that crypto assets are subject to regulations consistent with the framework that applies to other financial services. Taken together with detailed rules being developed by the Financial Conduct Authority, this framework will strengthen consumer protection, help tackle market abuse and provide the certainty that firms need to invest and grow in the UK.
There are already laws in place focused on addressing the most immediate risks from crypto assets, including anti-money laundering requirements and financial promotion rules. However, most crypto asset activities have not, to date, been subject to broader financial service regulations, including matters such as conduct and prudential requirements. Stakeholders and consumers have been calling on the Government to deliver a clear and comprehensive regime for crypto assets. The Treasury consulted on this regime in 2023, and in October 2024 the Government committed to implementing a regime largely in line with those proposals. The instrument before the Committee delivers on that commitment.
Specifically, the regulations would amend the 2001 regulated activities order to define crypto assets that would be within the scope of the regime, termed “qualifying crypto assets”, and to specify the new activities that will be regulated. Firms seeking to carry on those activities in the UK or deal with UK customers will be required to obtain authorisation from the FCA and comply with its rules, or risk committing a criminal offence. The new regulated activities are: issuing qualifying stablecoin in the UK; safeguarding the qualifying crypto assets and relevant specified investment crypto assets; operating a qualifying crypto asset trading platform; dealing in qualifying crypto assets as principal or agent; or arranging deals in qualifying crypto assets and qualifying crypto asset staking.
The instrument also uses the new designated activities regime to establish frameworks for public offers of qualifying crypto assets and their admission to trading on relevant platforms, alongside a market abuse regime tailored to crypto assets. Public offers of qualifying crypto assets will be restricted unless certain conditions are met. Firms will be required to publish disclosure documents so that investors have the necessary information when they are considering purchasing crypto assets, with clear rules around liability and compensation where information is untrue or misleading.
The market abuse provisions define “inside information” and prohibit insider dealing—the unlawful disclosure of inside information and market manipulation —thereby supporting market integrity and protecting UK consumers. The provisions would take effect from 25 October 2027. This timetable allows the FCA to finalise its detailed rules and guidance this year, and it gives firms time to familiarise themselves with the new rules and seek authorisation ahead of the enforcement date.
Noble Lords will know that the Secondary Legislation Scrutiny Committee raised this measure as an instrument of interest in its 47th report, published on 15 January. I am grateful for the consideration the committee has given this legislation. It noted some important points that I would like to reiterate here. First, on the costs to firms of the new regulations, the Government have published the de minimis assessment of the impact of the changes. The Government have taken a proportionate approach to the crypto asset regulatory regime to help manage the impact on firms. On FCA resourcing, the regulator confirmed that it has been increasing resources over the last few years to ensure that it has the right regulatory, technical and industry expertise needed to deliver the regime. Finally, the committee asked about the implementation timeline. As I said, the regime will be in force in October 2027, and the FCA expects the application period to be open later this year.
These regulations will raise standards, strengthen consumer protection, help prevent market abuse and support responsible growth in the UK’s digital asset sector. I beg to move.