What we can expect from crypto and payment services in 2025

What’s this article about? 

The upcoming changes in cryptocurrency regulation and its impact on payment services, focusing on the UK’s approach compared to the EU.

Why is it important? 

It outlines how the regulatory landscape for cryptocurrencies in the UK will evolve, affecting businesses and compliance.

What’s next? 

The UK government and the FCA will further develop and implement these regulations through consultations and legal frameworks, aiming for a comprehensive rollout by 2026.

As we approach 2025, the intersection of cryptocurrency and payment services is set to undergo transformative changes. With new regulatory frameworks on the horizon, professionals in the sector will face a dynamic environment. This pivotal year will redefine operational and compliance strategies, prompting firms to adapt swiftly to capitalise on emerging opportunities and navigate potential risks.

What are the government’s plans for the regulation of crypto?

Tulip Siddiq set out the new UK government’s plans for regulating cryptoassets in a speech presented at a summit organised by City and Financial Global. This speech signalled changes in direction from the approach previously set out by the FCA discussion paper on stablecoins.

Regarding crypto assets in general, she stated that new regulated activities would be introduced as previously indicated, such as operating a crypto asset trading platform, in addition to new regulated activities about admission to trading and market abuse.

Concerning stablecoins, despite the lack of a ‘big bang’ moment in retail payments, the government intends to proceed with the new regulated activities for stablecoin issuance to manage specific risks and ensure alignment with international recommendations.

However, we understand that stablecoins will not be brought into UK payments regulation at this time to avoid a disproportionate regulatory burden. This is a key difference from the EU regime introduced under MiCAR. This is a point to watch for payment services firms; it isn’t clear how this will work in practice. It remains to be seen whether this will have any wider ramifications, given the commonality between the definitions of e-money and fiat-backed stablecoins.

The government has stated that it plans to engage firms in drafting legal provisions for the cryptoasset regime, including stablecoins, as early as possible in the following year, aiming instead for a single-phase implementation for simplicity.

The government intends to remove legal uncertainty regarding whether cryptoasset staking services constitute a “Collective Investment Scheme” under financial services law, indicating that these services will not receive such treatment. Instead, risks from these services will be addressed within the forthcoming cryptoasset regulatory regime.

Existing regulatory requirements, such as ensuring financial promotions are fair, clear, and not misleading, will apply to cryptoasset services in this interim period.

What are the FCA’s plans for the regulation of crypto?

Reflecting this change in approach and change in direction, the FCA has published its “crypto roadmap”, which sets out the planned FCA policy publications for cryptoassets. The key dates for 2025 are as follows:

• Q1/Q2: FCA discussion paper: Trading platform rules, intermediation rules, lending rules, staking rules and prudential considerations.
• Q1/Q2: FCA consultation paper on stablecoins: rules on backing assets and redemption requirements, custody and prudential requirements.
• Q3: FCA consultation paper on conduct and firm standards for RAO activities, including systems and controls, operational resilience, financial crime, consumer duty, complaints, conduct and governance.
• Q3: FCA consultation paper on admissions, disclosures, and market abuse.
• Q4/Q1 2026: FCA consultation paper on trading platforms, intermediation, lending and staking and prudential issues.

It is currently intended that the final rules will be published in 2026, but there is no firm date for when these new rules will come into force.

Financial promotions and fiat to crypto on/off ramp services

The FCA has published guidance for firms about the risks of partnering with unregistered cryptoasset firms that may be illegally promoting to UK consumers. The FCA is concerned that EMIs and PIs that provide services (on ramp/off ramp) to unregistered cryptoasset firms are not doing enough to meet their own obligations. The FCA has also set out that firms should be prepared to discuss these matters if required by the FCA.

Under section 21 of FSMA, a person must not communicate an invitation or inducement to engage in investment activity during business. The FCA has reminded firms that the restriction now applies to financial promotions involving certain cryptoassets if the communication originates in the UK or outside the UK but can have an effect in the UK. The FCA has also stated that financial promotions do not need to be expressly targeted towards UK consumers to be capable of having an effect in the UK and be subject to the financial promotion regime.

When unregistered cryptoasset firms communicate financial promotions in breach of section 21 of FSMA, they commit a criminal offence. Payment services and e-money firms who partner with, or provide services to, unregistered cryptoasset firms communicating illegal financial promotions in breach of section 21 of FSMA may be at risk of directly or indirectly benefiting from the illegal financial promotions.

Final thoughts

The FCA will shortly issue key policy positions concerning cryptoassets and will now implement the new rules in one go instead of the phased approach. Firms will need to determine the business impact of these changes to the UK regulatory perimeter and the risks they face as a business. The FCA also focuses on consumer harm, and illegal financial promotions are a high priority. Regulated firms must carefully consider their own obligations.