Code Meets Law: An Overview of the UK’s Crypto-Asset Regulatory Shift

Cryptoassets are significantly changing the landscape of global finance. They have introduced innovations like digital currencies, Non-fungible Tokens (NFTs) and smart contracts, but they also bring about potential challenges or risks that could affect the financial system as a whole. While these digital instruments enable decentralised payments, programmable smart contracts, and financial inclusion, their volatility and technical complexity have exposed consumers and markets to unprecedented hazards. The 2022 collapse of FTX, which inflicted £2.1 million in verified losses on UK investors and led to a 37% drop in crypto valuations globally, underscored the urgent need for robust oversight.^[1]

In response, the UK has embarked on an ambitious regulatory overhaul, aiming to position itself as a global digital finance hub. This involves fostering innovation and attracting blockchain enterprises while also addressing and mitigating issues such as fraud, market manipulation, and environmental harm. Until 2023, the UK’s approach to crypto-assets remained fragmented, relying on piecemeal anti-money laundering (AML) rules and FCA consumer warnings rather than a comprehensive framework.^[2] This transformation occurred with the introduction of two landmark legislative acts. The Financial Services and Markets Act 2023^[3] brings crypto exchanges and custodians into the regulatory framework, while the Economic Crime and Corporate Transparency Act 2023^[4] empowers law enforcement to freeze and recover illicit crypto-assets. At the same time, English courts have affirmed the status of crypto-assets as legal property in cases such as AA v Persons Unknown [2019]^[5] and D’Aloia v Persons Unknown [2024]^[6]. This recognition enables victims to pursue tracing claims and seek injunctive relief. Taken together, these developments represent a decisive shift from reactive warnings to proactive governance, offering a hybrid model that contrasts with the EU’s prescriptive Markets in Crypto-Assets Regulation (MiCA)^[7] and the enforcement-centric regime in the United States.

Legislative Developments

(a) FSMA 2023: Phase 1 Stablecoin Rules and Phase 2 Expansion

The Financial Services and Markets Act 2023 marks a significant development in the regulation of crypto-assets by amending the definition of ‘specified investments’ in the Financial Services and Markets Act 2000 to include crypto-assets.^[8] These are defined as any cryptographically secured digital representation of value or rights that can be transferred or traded.^[9] It is important to distinguish these structural changes from the Cryptoasset Financial Promotion Rules, which came into force on 8 October 2023 under the pre-existing powers of the Financial Services and Markets Act 2000. While the promotion rules operate independently of the 2023 Act, they represent a complementary measure targeting misleading advertisements and consumer protection.^[10] The 2023 Act implements a two-stage approach to regulation.

Phase 1 (already underway) concentrates on fiat-backed stablecoins, treating them as a form of digital payment instrument. Issuers of such stablecoins must obtain authorisation from the FCA, and transactions using stablecoins are brought within the regulated payments and e-money regime. This phase was enabled by FSMA 2023, which in June 2023 granted powers to create a regulatory framework for stablecoins used as payment, making them subject to oversight akin to other payment systems. ^[11]

Phase 2, which will be implemented through secondary legislation, will extend regulation to other cryptoasset activities, including issuance, trading, and custody services, among others.^[12] The government confirmed this expansion in April 2024, outlining the intended scope and timing in the draft Regulated Activities Order outlining the scope and timing for Phase 2.^[13] Altogether, this framework aims to provide thorough oversight, placing crypto activities on an equal footing with traditional financial services. It seeks to offer legal certainty by applying familiar rules regarding capital, conduct, and reporting to crypto firms. However, its success hinges on the timely implementation and enforcement of these new rules.

(b) Economic Crime and Corporate Transparency Act 2023: Anti-Fraud and Asset Recovery Tools

The Economic Crime and Corporate Transparency Act 2023^[14] complements the FSMA framework by specifically targeting the misuse of crypto in criminal activities. Enacted in October 2023, this legislation explicitly includes crypto-assets within enforcement and asset recovery laws. It expands the powers of the National Crime Agency and courts to seize, freeze and confiscate crypto-assets involved in crime, and it amends confiscation and civil recovery regimes to incorporate digital tokens. Additionally, it establishes a corporate ‘failure to prevent fraud’ offence related to crypto. Notably, the 2023 Act extends existing asset recovery provisions, such as those under the Proceeds of Crime Act, to include crypto-assets.^[15]

These measures acknowledge that crypto can facilitate money laundering, fraud, and sanction evasion. By bringing crypto-assets under the umbrella of anti-money laundering, counter-terrorism financing, and confiscation law, the 2023 Act closes a previous loophole.^[16] In principle, this allows the UK to recover stolen or illicit crypto-assets as easily as cash or securities. For instance, frozen Bitcoin or Ethereum can now be forfeited following a conviction. The ‘failure to prevent fraud’ offence also incentivises firms to implement controls against crypto-based fraud. Overall, the Act signals a firm stance on crypto-related crime, aligning with global anti-money laundering standards. Its effectiveness will depend on law enforcement’s technical capacity, such as blockchain analytics, and international cooperation. Nonetheless, it provides a solid legal foundation for prosecuting crypto-enabled crime.^[17]

Regulatory Initiatives and Guidance

The regulation of crypto-assets relies on two main components. First, there is the legislation, which provides the legal framework for oversight. Second, regulatory bodies such as the Financial Conduct Authority (FCA) and the Bank of England (BoE) have important roles. They have each released documents outlining their plans and priorities for managing crypto-assets. These efforts by the FCA and BoE help ensure that the regulatory framework is effectively implemented and enforced.

(a) Financial Conduct Authority

The Financial Conduct Authority (FCA) serves as the primary regulator for crypto markets in the UK, not just for crypto but as part of its broader financial regulatory role. Initially, the FCA registered crypto firms under anti-money laundering rules and has consistently warned that crypto investments are high-risk. In May 2025, the FCA issued Discussion Paper DP25/1, which outlines how it will implement the new statutory framework.^[18]. This paper suggests that trading platforms, brokers, custodians, lending protocols, and other crypto intermediaries will need FCA authorisation and must comply with conduct rules. The paper emphasises consumer protection, noting that crypto investments are not covered by compensation schemes and many will remain risky and unprotected in the interim. The FCA invites feedback on the paper, and formal rulemaking under the Financial Services and Markets Act 2000 will follow once the new powers are enacted. This consultative approach may encourage innovation and industry input, but it also means that regulatory clarity may not keep pace with market developments.

(b) Bank of England

The Bank of England (BoE) focuses its efforts on financial stability, particularly the systemic implications of crypto-assets. The BoE is primarily concerned with stablecoins, which could operate like digital money within payment systems. In July 2023, the BoE published a discussion paper on a regulatory regime for systemic payment systems using stablecoins.^[19] This paper proposes criteria for identifying ‘systemic’ stablecoin networks, such as those with large-scale retail payment usage. It requires issuers of such stablecoins to adhere to strict governance, capital, and operational standards, essentially applying bank-like regulations to stablecoin systems.

This approach aligns logically with the FSMA’s provisions on stablecoins, which allow the BoE to regulate if a stablecoin’s use reaches a significant scale. By outlining these requirements early, the BoE encourages the industry to design stablecoins that are safe and reliable. However, the regime assumes that systemic stablecoins will emerge in the UK. Currently, large-scale stablecoin use in UK payments is limited, with most stablecoins circulating in trading environments. As a result, the BoE’s regulatory framework may remain inactive unless adoption increases. Nonetheless, it demonstrates the Bank’s preparedness to act if necessary.

(c) HM Revenue & Customs (HMRC) and Crypto Reporting

While not a financial regulator, HM Revenue and Customs (HMRC) contributes to tax transparency beyond just the crypto sector. In May 2025, HMRC announced its plan to implement the OECD’s Crypto-Asset Reporting Framework (CARF).^[20] Under this framework, UK crypto-asset service providers, such as exchanges, custodians, brokers, and wallet providers, must gather detailed information on customers and transactions. Starting in January 2026, these ‘reporting cryptoasset service providers’ will be required to report to HMRC, with the first returns due in May 2027. CARF applies to transactions between users worldwide, similar to the Common Reporting Standard for bank accounts.

For UK enforcement, CARF will significantly enhance visibility into crypto holdings and flows, aiding tax compliance and helping trace illicit transactions in cooperation with foreign authorities.^[21] It effectively integrates crypto into the existing international tax and anti-money laundering architecture. Although this introduces an additional compliance burden and raises privacy concerns, for regulators, it represents a pragmatic step by incorporating crypto into the existing framework of financial intelligence.^[22]

Judicial Recognition: Cryptoassets as Property

English courts have recognised crypto-assets as property, which carries significant legal implications. In the case of AA v Persons Unknown,^[23] the Commercial Court ruled that Bitcoin and other crypto-assets are property capable of legal remedies. The court endorsed the UK Jurisdiction Taskforce’s (UKJT) legal statement,^[24] noting that crypto-assets meet the classic criteria for property, which are definable, identifiable, assignable, and having permanence, as established in National Provincial Bank v Ainsworth^[25]. As a result, victims of crypto theft can seek proprietary injunctions and freezing orders. In AA, the court allowed a preservation order over stolen Bitcoin, using blockchain analysis to trace the funds.

The case of D’Aloia v Persons Unknown^[26] extended the reasoning in AA to stablecoins, finding that a dollar-backed stablecoin like Tether is considered property under English law. This confirms that fiat-referenced tokens are not exceptions, allowing clients defrauded of stablecoins to obtain court orders against those assets. Consequently, these decisions have practical effects by incorporating cryptoassets into the framework of English law. In principle, courts can now apply insolvency rules, trust principles, and equitable remedies to crypto-assets. For example, a bankrupt debtor’s Bitcoin is considered part of the estate, allowing a trustee or liquidator to trace crypto held by an exchange. This provides legal certainty for corporate treasurers and institutional users, affirming the legal status of tokens. It also strengthens enforcement, as fraudsters cannot claim immunity based on the code from freezing orders. While property status alone does not solve all issues, such as tracing overseas wallets, UK law now clearly treats crypto as property eligible for legal remedies.

Evaluation of the UK’s Regulatory Compliance Regime

The UK's crypto strategy exemplifies features of responsive regulation, where instead of employing a command-and-control approach, regulators have engaged in dialogue and iteration.^[27] As mentioned above, the Financial Conduct Authority's consultative approach, such as with Discussion Paper DP25/1, along with the Bank of England's discussion papers and government innovation initiatives, reflects an effort to educate and collaborate with the industry before implementing strict rules. This strategy may encourage industry cooperation and allow for flexible adjustments to the rules. Simultaneously, the UK has demonstrated its willingness to enforce regulations: the FCA has already fined and disqualified crypto firms for breaches of anti-money laundering rules, and the Economic Crime and Corporate Transparency Act 2023 serves as a strict punitive measure. This combination of incentives and enforcement is typical of responsive regulation, aiming to deter misconduct while supporting innovation under oversight.

Additionally, the UK's approach can be viewed through the lens of principles-based regulation. By integrating crypto into the Financial Services and Markets Act and existing legislation, UK authorities rely on overarching principles such as market integrity, consumer protection, and fairness, instead of focusing on crypto-specific details. This approach provides the ability to adapt, allowing regulators to interpret principles for new crypto instruments, although it may create uncertainty for firms seeking clear, defined rules. Some stakeholders have called for more specific regulations, like whitepapers for tokens, as seen in the EU's Markets in Crypto-Assets Regulation. However, the UK favours adapting established laws, which are already principles-based, with the FCA emphasising high-level outcomes such as honesty and competence rather than prescribing technology standards.

Overall, the UK’s stance is pragmatically pro-innovation yet cautious, as it has not banned crypto outright like some nations did in 2017-18, nor has it embraced it uncritically. The guidance and consultations consistently warn of risk, indicating that regulation will prioritise protecting consumers and the financial system. This approach aligns with the UK’s broader ethos as a financial centre, aiming to be a hub with high standards rather than a crypto utopia, which may attract firms that prefer clear rules and regulatory engagement over jurisdictions with regulatory voids or unpredictability.

Strengths vs Limitations

The UK regulatory regime is broad and well-integrated, with the Financial Services and Markets Act 2023 and related Orders bringing most crypto activities under established financial laws, thereby creating regulatory certainty. This comprehensive framework ensures that different regulators, including the Financial Conduct Authority, the Bank of England, HM Revenue and Customs, and law enforcement, address complementary aspects such as market conduct, stability, taxation, and crime. The framework aligns with international standards and makes use of proven supervisory tools like capital requirements, audits, and anti-money laundering checks. Additionally, it includes judicial clarity regarding the property status of crypto-assets, which is an aspect many jurisdictions lack. In summary, the UK has developed a comprehensive ‘whole-of-government’ approach that avoids piecemeal rules, providing a cohesive regulatory environment.

While the regime is comprehensive, it does have certain vulnerabilities. Many key rules are still in draft form or under consultation, meaning full enforcement is not yet in place. Until the Cryptoassets Order and final rules are established, market participants face uncertainty and the potential for regulatory arbitrage exists. Some emerging areas are not fully addressed, particularly decentralised finance (DeFi) platforms that use smart contracts for lending or trading, which often lack a clear legal entity to license, thus creating a regulatory blind spot. The phased approach can also lead to transitional inconsistencies; for instance, initially delaying amendments to the Payment Services Regulations for stablecoins created a temporary gap in payments law. Additionally, enforcement resources may be stretched due to the technical complexity of crypto-assets. Finally, cross-border issues remain a significant challenge, as without global harmonisation, crypto businesses may take advantage of offshore jurisdictions.

In summary, the UK regime is robustly designed in many respects, but its success depends on swift implementation, effective enforcement, and adaptability. Stakeholders have responded positively to the clarity of its scope, but they expect regulators to address the remaining gaps. While this article has focused on the UK’s evolving regulatory approach to crypto-assets, understanding the broader international context is essential. Jurisdictions such as the European Union and the United States have adopted markedly different frameworks, ranging from the EU’s prescriptive Markets in Crypto Assets Regulation (MiCA) to the more fragmented, enforcement led model in the US. Each approach provides valuable insights and poses questions about regulatory convergence, cross-border enforcement, and the global competitiveness of the UK regime. A forthcoming publication will explore these international models and their implications for UK policymakers, market participants, and consumers.

Authors:

Brian Sanya Mondoh, Pupil Barrister (TBG) and Attorney at Law, Founder at Blockchain Lex Group and CryptoMondays Caribbean

Palesa Roza Gwele, Director of Communication and Head of Research at Blockchain Lex Group

Disclaimer: This publication is for informational purposes only and does not constitute legal or financial advice. The content is not intended to be a substitute for professional advice or judgment. Please consult with a qualified legal or financial advisor before making any decisions based on the information provided in this publication. The authors and publishers are not responsible for any actions taken as a result of reading this publication.

Bibliography

Legislation

• Economic Crime and Corporate Transparency Act 2023
• Financial Services and Markets Act 2000
• Financial Services and Markets Act 2023
• Regulation (EU) 2023/1114 (MiCA)
• Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023, SI 2023/911
• Proceeds of Crime Act 2002 (c 29)
• Regulation (EU) 2023/1114 on Markets in Crypto-Assets (MiCA)
• Virtual Financial Assets Act 2018 (Cap 590, Laws of Malta)

Cases

• AA v Persons Unknown [2019] EWHC 3556 (Comm)
• D’Aloia v Persons Unknown [2024] EWHC 2342 (Ch)
• National Provincial Bank Ltd v Ainsworth [1965] AC 1175 (HL)

Official Publications

• Bank of England, Regulatory Regime for Systemic Payment Systems Using Stablecoins (Discussion Paper, November 2023)
• Financial Conduct Authority, Discussion Paper DP25/1: Regulating Cryptoasset Activities (May 2025)
• HM Revenue & Customs, Reporting to HMRC if You Provide Cryptoasset Services in the UK (Policy Paper, May 2025)
• HM Treasury, Future Financial Services Regulatory Regime for Cryptoassets: Regulated Activities – Policy Note (April 2025)
• UK Jurisdiction Taskforce, Legal Statement on Cryptoassets and Smart Contracts (LawTech Delivery Panel, November 2019)
• OECD, Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard (10 October 2022)
• Law Society of England and Wales, Economic Crime and Corporate Transparency Act – What’s Changing (12 February 2025)

Books

• Ian Ayres and John Braithwaite, Responsive Regulation: Transcending the Deregulation Debate (Oxford University Press 1992)

Online Sources

• City A.M., ‘FTX collapse: UK investors report losses of nearly £2m to police’ (22 February 2023) https://www.cityam.com/ftx-collapse-uk-investors-report-losses-of-nearly-2m-to-police/ accessed 12 May 2025
• Hannah Lang et al, ‘The Crypto Market Bears the Scars of FTX’s Collapse’ (Reuters, 3 November 2023) https://www.reuters.com/technology/crypto/crypto-market-bears-scars-ftx-collapse-2023-11-03/
• Wiggin LLP, ‘UK Crypto Regulation – HM Treasury’s Draft Cryptoassets Order and What Lies Ahead for 2025’ (20 November 2023) https://www.wiggin.co.uk/insight/uk-crypto-regulation-hmt-cryptoassets-order-2025/