Overview

HM Treasury has issued a draft statutory instrument (SI), together with a policy note, setting out proposed amendments to the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026 (the Crypto Regs).

The Crypto Regs were made in February 2026 and provide the underlying statutory framework for the UK’s cryptoasset regime, with most provisions expected to come into force in October 2027. Amongst other things, the Crypto Regs establish a financial services regulatory perimeter and a regulated activities licensing regime for specified cryptoasset activities. The government has indicated that it intends to build on this framework through broader reforms to modernise UK payment services legislation, including to support innovation in tokenised payments such as stablecoins.

The draft SI seeks to rationalise the interaction between the cryptoasset regime and the forthcoming payment services reforms, to correct unintended consequences arising from the current form of the Crypto Regs, and to address feedback from the sector with a view to securing a competitive UK regime.

UK-issued qualifying stablecoin (UKQS) carve-out from dealing and arranging activities

Under the current scheme of the Crypto Regs, firms providing stablecoin payment services may fall within the scope of the proposed regulated activities of dealing in or arranging qualifying cryptoassets.

The government intends to consider the treatment of stablecoins within the payments framework as part of its forthcoming reforms to regulation in that sector. Pending those reforms, the draft SI proposes a targeted carve-out for certain activities involving UKQS from the regulated activities of:

• Dealing in qualifying cryptoassets as principal;
• Dealing in qualifying cryptoassets as agent; and
• Arranging deals in qualifying cryptoassets.

This carve-out is intended to reduce the risk that firms providing stablecoin payment services would otherwise require authorisation for dealing or arranging activities ahead of the implementation of the updated payments regime.

However, lending and borrowing activities involving UKQS would remain within the scope of the dealing activities. The government recognises that this may give rise to frictions and indicates that it will consider these issues further

The policy note also highlights that overseas-issued stablecoins would remain within the dealing and arranging perimeter, which could create friction for certain cross-border use cases. Again, HM Treasury intends to engage further on these points.

 Safeguarding

Importantly, the proposed carve-out for dealing and arranging does not remove the application of cryptoasset safeguarding requirements to firms undertaking UKQS payment activities.

As part of the broader payments reforms, the government indicates that it is considering whether safeguarding carried out in the course of providing payment services should instead fall within the payment regulatory framework. Pending those reforms, the current approach is intended to ensure that firms undertaking UKQS payment activities remain subject to appropriate regulatory oversight.

The SI also proposes to clarify the scope of the temporary settlement exclusion from cryptoasset safeguarding. In particular, the clarification is intended to ensure that the exclusion does not inadvertently apply to firms holding UKQS in the course of providing payment services.

Consequential changes

The government is proposing a number of consequential changes as part of the approach set out above. These include:

• Financial promotions: The draft SI proposes amendments to the financial promotions regime in relation to UKQS. In particular:
  • Certain transactions relating solely to UKQS may be excluded from the regime, subject to limitations; and
  • The activity of issuing a qualifying stablecoin would be added as a controlled activity for financial promotions purposes.
• CIS/AIF perimeter: The government proposes to bring into force, earlier than planned, provisions that clarify that stablecoin backing assets do not constitute a collective investment scheme (CIS) or an alternative investment fund (AIF).

Proprietary trading and market making

The policy note identifies potential competitive asymmetries in the treatment of proprietary trading under the current regime, particularly where UK firms trading on their own account may be subject to authorisation requirements that may not apply to overseas firms in the same circumstances.

The draft SI proposes amendments intended to address these concerns and to support the provision of liquidity in UK cryptoasset markets, by removing the authorisation requirements for UK based firms that only act as market-makers without providing any client services.

Financial market infrastructure and tokenised assets

In the context of traditional securities infrastructure, Central Securities Depositories (CSDs) and their nominees are exempt under UK financial services law from requiring authorisation for the custody services that they provide as part of their core functions. The SI also proposes to mirror this position in respect of safeguarding arrangements in connection with specified investment cryptoassets, addressing an identified inconsistency and supporting the development of tokenised securities infrastructure.

Next steps

HM Treasury has invited feedback on the draft SI and accompanying policy note, with responses requested by 22 May 2026.

Firms with exposure to the cryptoasset regime may wish to review the proposals in detail, particularly where their activities involve:

• Stablecoin-based payment solutions;
• Proprietary trading or liquidity provision; or
• Custody and settlement arrangements for tokenised assets.

The consultation process provides an opportunity for stakeholders to highlight practical considerations as the UK continues to refine its approach to cryptoasset regulation alongside introducing broader payments reform.

Client Alert 2026-092