On 7th January 2021, HM Treasury published a consultation paper outlining the UK’s proposed regulatory approach to cryptoassets and stablecoins (the “Consultation”).

The Consultation represents the first stage of HM Treasury’s consultative process on the broader regulatory approach to these assets. Within the paper, HM Treasury acknowledged the benefits of such products and reiterated its intention to ensure that the UK remains a “world-leader” in financial technology, while seeking to mitigate related risks to consumers and financial stability.

Accordingly, the Consultation proposes an incremental, phased approach to regulatory adjustments, constituting an expansion of the regulatory perimeter for relevant tokens. This approach would be rooted in the principle of "same risk, same regulatory outcome", with UK policymakers keen to ensure that their approach is proportionate and focused on where risks and opportunities are most urgent or acute.

Objectives and principles would be set by the government and HM Treasury, while detailed rules would be set by the regulators including primarily the Financial Conduct Authority (FCA). The intention is therefore to maintain the current division of UK regulatory responsibilities as far as possible.

In practice, this means that HM Treasury will not seek to specify detailed firm requirements through legislation (and it has not done so in the Consultation). Instead, the government aims to define the scope of the regulatory perimeter and the objectives and principles that should apply under the new regime.

One immediate area of focus is stablecoins. HM Treasury has observed that certain stablecoins have the potential to play an important role in the future of retail and cross-border payments, including in settlement. Consequently, it has proposed the creation of a regulatory regime for stablecoins that are to be used as a means of payment, in order to capture those firms issuing stablecoins and firms providing relevant services in relation to them. It is proposed that the FCA will authorise and supervise relevant entities, including issuers, who are carrying out certain activities in the UK. Interestingly, the Consultation also considers the imposition of location restrictions on firms actively marketing or delivering relevant services to UK-based customers (i.e. requirement to have a UK establishment).  

In contrast, unregulated tokens primarily used for speculative purposes, such as Bitcoin, will remain outside the regulatory perimeter for both conduct and prudential purposes. In support of this approach, HM Treasury cited a recent survey which found that 89% of consumers understood that these products were not subject to regulatory protections – thereby suggesting that consumer awareness of risks associated with unregulated tokens remained relatively high.

HM Treasury also noted that unregulated exchange and utility tokens may be subject to more stringent regulation going forward in relation to consumer communications via the financial promotions regime and AML/CTF regulation.

The Consultation remains open for comments from stakeholders until 21st March 2021.

For your reference, a summary of how the proposed changes will impact upon the regulation of respective token types is included below:

Token type


In scope for first phase of legislative changes?

Rules applying

Stable tokens


Value linked to a single fiat currency (e.g. GBP, USD)


FCA authorisation regime based on payments regulation (with enhanced requirements if systemic thresholds are met)

Stable tokens

(other asset-linked)

Value linked to an asset other than a single fiat currency (e.g. gold or multi-currency)


FCA authorisation regime with specific requirements on backing assets (with enhanced requirements if systemic thresholds are met)

Unregulated exchange tokens

No backing


Primarily retail speculative investments or means of exchange. May include algorithmic tokens.

No – but may be subject to regulation in future (e.g. potential consumer disclosures via the financial promotions regime, with core entities facilitating their use also potentially subject to AML/CTF regulation)


Unregulated utility tokens

Used to access a current or future service (e.g. access to a DLT platform), but may also be exchanged.

No – but may be subject to regulation in future (e.g. potential consumer disclosures via the financial promotions regime, with core entities facilitating their use also potentially subject to AML/CTF regulation)


Security tokens

Meets definition of specified investment under the RAO and is subject to regulation

No – but HM Treasury is considering whether changes may be needed to provide clarity to support use in future

Subject to existing regulation

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