Structure and scope

The Draft Order amends various legislation, including the RAO, the Financial Services and Markets Act 2000 (FSMA) and the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO).

The Draft Order is split into six parts, which broadly cover the following:

Part 1 provides introductory information relating to the Draft Order, including its interpretation.

Part 2 part amends the RAO, inserting new categories of specified activities relating to cryptoassets.

Part 3 amends FSMA and includes information around the geographic perimeter of the regime.

Part 4 is largely concerned with the FPO, updating various definitions and inserting additional FPO controlled activities.

Part 5 makes various consequential amendments to other relevant statutory instruments, including the Money Laundering Regulations.

Part 6 provides practical information and arrangements relating to the regime.

The Draft Order broadly reflects the proposals published by the Treasury in 2023.

Key changes

New Specified Investments

In broad terms, under the FSMA, an activity is a regulated activity if it is an activity specified in the RAO and is carried on by way of business and (in most cases) relates to an investment that is specified in the RAO.

The Draft Order introduces two new types of specified investment: (i) a ‘qualifying cryptoasset’ and (ii) a ‘qualifying stablecoin’.

Qualifying cryptoassets

Qualifying cryptoassets are cryptoassets (as defined in FSMA) which are fungible and transferable (including by way of redemption with the issuer) and which are not excluded from the scope of the definition.

Among the items excluded from the definition are central bank digital currency, fiat currency and certain cryptoassets that cannot be sold to third parties and can only be used to buy goods or services from an issuer or a “limited network” of service providers.

Qualifying stablecoins

Qualifying stablecoins are qualifying cryptoassets that reference a fiat currency and seek to maintain a stable value in relation to the referenced fiat currency by holding or arranging the holding of fiat currency or other assets.

Note that the definition of a “qualifying cryptoasset” excludes “specified investment cryptoassets”, which are cryptoassets that constitute a specified investment under some other part of the RAO, for example, as a debt instrument or a unit in a collective investment scheme. This implies that a tokenised or digitised version of a specified investment which has the same characteristics and rights and obligations as the specified investment will be categorised in the same way (namely, as a specified investment).

New specified activities

The Draft Order introduces a new chapter 2B into the RAO which sets out the specified activities that apply to qualifying cryptoassets (Specified Cryptoasset Activities). The specific exclusions relating to these activities are also set out in the same chapter.

This is somewhat novel within the RAO. In the cases of the specified activities of dealing as principal, dealing as agent and arranging deals, the drafting of the new Specified Cryptoasset Activities is very similar to existing specified activities applicable to other specified investments. Similar specified activities are generally included in the same chapter of the RAO with a common set of exclusions. By setting out the new Specified Cryptoasset Activities separately in their own chapter, the Treasury has created the opportunity to establish an exclusions regime specifically tailored to cryptoassets, which does not carry across all of the exclusions that currently apply to other specified investments.

Given that there is considerable learning (including guidance from case law) on the scope of the existing specified activities and the existing exclusions, the schema adopted leaves open the question as to whether that learning will similarly apply to the analogous Specified Cryptoasset Activities and related exclusions.

The new specified activities are set out below:

1. Stablecoin issuance: the issuance of a qualifying stablecoin in the UK
2. Trading platforms: operating a qualifying cryptoasset trading platform
3. Dealing as principal: dealing in qualifying cryptoassets as principal
4. Dealing as agent: dealing in qualifying cryptoassets as agent
5. Investment intermediary: arranging deals in qualifying cryptoassets
6. Safeguarding (custody) services: safeguarding qualifying cryptoassets and relevant specified investment cryptoassets
7. Staking: making arrangements for qualifying cryptoasset staking

Territorial scope

Most cryptoassets are issued overseas, and the question of the territorial scope of regulation is particularly important in this area. To fall within the UK regulatory perimeter, regulated activities must be carried on “in the UK”. This term is generally undefined and left to common law interpretation. There are two exceptions to this. Section 418 of the FSMA defines certain cases when a regulated activity will be deemed to be carried on in the UK, even when it would not otherwise do so. The overseas persons exclusion enables an “overseas person” to carry on certain regulated activities on a cross-border basis where this is with a UK-authorised person under FSMA or where it complies with the financial promotion restriction. The exclusion is chiefly used to enable overseas access to the UK’s wholesale financial markets.

Under the terms of the new article 9M of the RAO, the issuance of qualifying stablecoins (activity 1 above) will be caught by UK regulation if qualifying stablecoins are issued by a UK issuer.

Beyond that, section 418 makes considerable changes to the territorial scope of regulation. The first change applies if a person is carrying on a “regulated cryptoasset activity” that involves dealing or trading (activities 2–5 above) and, in doing so, is involved directly or indirectly in the sale or subscription of qualifying cryptoassets to or by a UK consumer. In that case, the Draft Order amends section 418 of FSMA to deem those activities as being carried on by the person in the UK. But such activities will not be deemed to take place in the UK if there is a UK-authorised intermediary between the person and the consumer. Similar provisions apply in relation to activities 6 and 7 above.

Where there is no UK consumer involvement, the question of whether an activity is carried on in the UK will be left to the common law. No equivalent to the overseas persons exclusion has been included in respect of regulated cryptoasset activities. Until the common law evolves, there will likely be some difficulty in determining whether a particular regulated cryptoasset activity is conducted in the UK, thus triggering the need for authorisation.

E-money token

The Treasury has decided not to proceed with amending the Payment Services Regulations 2017 (PSRs) to bring UK-issued stablecoins used for payments within the regulatory perimeter for payment services. Such payments will continue to fall outside the PSRs at this stage, meaning that the use of stablecoins for payments will be treated differently to that using electronic money (including tokenised electronic money) or fiat currency.

Financial promotions order

The Draft Order makes consequential amendments to the FPO to ensure that the new regulated activities are in scope of the existing financial promotions regime where this may not have been the case previously.

Next steps

Firms should review the Draft Order and consider whether to submit technical comments before the deadline on 23 May 2025. As the Treasury considers its general policy towards cryptoassets to be largely settled, firms can begin to consider the implications of the Treasury’s policy (set out in the Policy Note) for their internal business functions, albeit more detailed requirements remain under consideration by the FCA.

Client Alert 2025-130