UK Government Plans Major Crypto Regulatory Overhaul to Strengthen FCA Powers

The UK Government is preparing comprehensive legislation that would dramatically expand the Financial Conduct Authority's (FCA) authority over the cryptocurrency sector, bringing digital asset firms under regulatory oversight similar to that governing traditional financial markets. The planned reforms, scheduled for implementation in the latter half of 2027, represent a significant shift in how Britain approaches oversight of its rapidly growing crypto market.

Background and Context

Cryptocurrency operations have largely existed outside the comprehensive regulatory framework that governs traditional financial instruments like stocks and shares in the UK, leaving investors vulnerable to sophisticated fraud schemes. The regulatory gap has become increasingly concerning as crypto-related scams have proliferated, with the Serious Fraud Office recently launching an investigation into Basis Markets, a suspected fraudulent crypto scheme involving approximately $28 million (£21 million). Industry data indicates that investment scams paid out nearly $1 billion (£747 million) in cryptocurrency to fraudsters during the first half of 2025 alone.

Currently, crypto firms including exchanges and wallet providers must register with the FCA only when their activities fall under anti-money laundering regulations, representing a fraction of the oversight applied to conventional financial services. The Treasury argues that extending the FCA's mandate is essential for protecting consumers while supporting legitimate innovation in the sector.

Key Figures and Entities

Chancellor Rachel Reeves has framed the regulatory expansion as essential for maintaining the UK's position as a global financial leader, stating that "bringing crypto into the regulatory perimeter is a crucial step in securing the UK's position as a world-leading financial centre in the digital age." She emphasized that the new framework would provide businesses with certainty while offering consumers robust protections and preventing fraudulent operators from accessing the UK market.

Lucy Rigby, minister for the City of London, reinforced this positioning, noting that "we want the UK to be at the top of the list for crypto assets firms looking to grow and these new rules will give firms the clarity and consistency they need to plan for the long term." Meanwhile, FCA Chief Executive Nikhil Rathi has outlined a supervisory approach focused on "outcomes, not prescriptive rules" in recent correspondence with the prime minister, signaling a potentially flexible implementation of the new requirements.

Legal and Financial Mechanisms

The forthcoming legislation will introduce a regulatory regime modeled on the framework that governs mainstream financial products, significantly widening the watchdog's remit over companies offering crypto services. This approach will require crypto firms to meet stringent requirements currently applied to traditional financial institutions, including enhanced transparency, consumer protection measures, and systems for identifying suspicious activities.

The FCA has already begun preparing for this expanded role, recently developing plans for the tokenisation of investment funds, the integration of artificial intelligence in financial services, fast-tracked approval processes for new fintech companies, and the "mainstreaming" of stablecoins. These initiatives reflect the regulator's attempt to balance innovation with oversight as it prepares to assume broader authority over the crypto ecosystem.

International Implications and Policy Response

The UK's regulatory development comes as the European Union implements its comprehensive Markets in Crypto-Assets (MiCA) regulation, which establishes extensive requirements for crypto-asset service providers and is set to be fully enforced by the end of 2025. The UK initiative appears designed to maintain competitive parity with European markets while establishing a distinct regulatory approach that balances oversight with support for innovation.

Under the current Labour government, the UK is pursuing what officials describe as a sophisticated combination of cutting-edge regulation paired with the reduction of burdensome red tape that could hinder economic growth. This strategy reflects an attempt to position Britain as an attractive jurisdiction for crypto businesses while implementing necessary safeguards to protect consumers and maintain market integrity.

Sources

This report draws on statements from the HM Treasury, regulatory publications from the Financial Conduct Authority, official announcements from the Serious Fraud Office, and public statements by UK government officials including Chancellor Rachel Reeves and City of London Minister Lucy Rigby.