The UK Financial Conduct Authority (FCA) has proposed waiving some traditional financial (TradFi) regulatory rules for cryptocurrency firms as part of a new consultation paper launched in September 2025. These proposals aim to foster a competitive, innovative, and sustainable crypto sector in the UK while balancing consumer protection, market integrity, and operational resilience. This marks a significant and strategic shift in the UK’s approach to crypto regulation, distinguishing it from stricter frameworks in the European Union and the United States.
Background and Context
The FCA’s regulatory shift follows the UK Government’s draft legislation published in April 2025 under the Financial Services and Markets Act 2000 (Cryptoassets) Order 2025, which formally brought a range of cryptoasset activities into the UK’s financial regulatory perimeter. These activities include operating cryptoasset trading platforms, crypto lending and borrowing, stablecoin issuance, and safeguarding qualifying cryptoassets.
The UK aims to align its regulatory framework with global standards while creating a business-friendly environment to attract crypto firms and investors. The FCA’s intention is to enable these firms to compete globally by easing certain regulatory requirements that may not be suitable for the unique characteristics of digital assets.
Key FCA Proposals
In consultation paper CP25/25 released on September 16, 2025, the FCA outlined the possibility of exempting crypto firms from four essential traditional financial principles:
- Operating with integrity
- Exercising skill, care, and diligence
- Prioritizing customer interests
- Providing appropriate advice and discretionary decision-making for clients
The regulator suggests that waiving these principles may help crypto firms meet minimum operational standards and grow without being overly burdened by rules designed for conventional financial services.
David Geale, FCA Executive Director of Payments and Digital Finance, highlighted the goal of building a crypto market that balances innovation with market integrity and trust. He acknowledged that the proposals would not eliminate the inherent risks in crypto investing but would help firms follow common standards so customers have clearer expectations.
Consumer Protection and Risk Management
Despite proposing exemptions from some TradFi rules, the FCA stresses the continued necessity of consumer protection. The regulator plans to maintain strict oversight on issues such as anti-money laundering (AML), financial crime prevention, operational resilience, and complaints handling.
The devastating $1.5 billion security breach of Dubai-based cryptocurrency exchange Bybit in early 2025 underscored the need for robust operational risk management. The FCA is considering imposing higher standards on crypto firms to guarantee operational resilience and safeguard customer assets effectively.
Additionally, the FCA is consulting on whether the Consumer Duty—a regulatory principle mandating firms to act in ways that deliver positive outcomes for their customers—should apply to crypto businesses. The discussion also includes the possibility of allowing crypto customers to escalate disputes to the UK’s Financial Ombudsman Service for compensation, mirroring protections available in traditional finance.
Impact on Market Participants and Innovation
The FCA’s approach contrasts notably with the European Union’s Markets in Crypto-Assets (MiCA) regulation and the U.S. GENIUS Act, both of which impose more stringent compliance demands on crypto firms. UK’s regulatory flexibility may create cost arbitrage opportunities, attracting startups and established players eager to avoid heavier regulatory burdens elsewhere.
This regulatory divergence is expected to enhance innovation, particularly around stablecoins and decentralized finance (DeFi) activities. The FCA has introduced a more flexible stablecoin framework permitting a wider variety of reserve assets and quicker redemption times. This flexibility encourages experimentation with hybrid stablecoins and innovative DeFi protocols while maintaining prudent oversight.
By facilitating easier market entry and aligning regulatory goals with the U.S., the UK aspires to become an international hub for regulated crypto trading and financial innovation. This strategy could help the UK capture a larger market share in the global digital asset economy.
Retail Investor Access and Crypto Exchange-Traded Notes (ETNs)
In a related move, the FCA announced in August 2025 that it will lift the ban on retail investors accessing cryptocurrency exchange-traded notes (cETNs), effective October 8, 2025. This decision allows retail clients to gain regulated exposure to major cryptoassets like Bitcoin and Ether through investment products listed on approved UK exchanges, such as the London Stock Exchange.
However, the regulator maintains a cautious stance, continuing to prohibit retail access to high-risk crypto derivatives like contracts for difference (CFDs) and futures, due to concerns over volatility and market manipulation.
Global Regulatory Alignment and Challenges
The FCA is pursuing alignment with U.S. regulatory objectives, particularly around stablecoin oversight and anti-money laundering standards, facilitating cross-border collaborations and smoother market access for firms operating in both regions.
However, this strategic divergence also carries risks. Consumer protection advocates worry that waiving integrity and customer-interest rules could lead to weakened safeguards, exposing investors to potential misconduct or operational failures. There is concern over reputational damage and systemic risks, such as stablecoin collapses, if adequate protections are not enforced.
The UK FCA’s proposal to waive some traditional financial rules for crypto firms represents a bold regulatory experiment aimed at accelerating innovation and market competitiveness. It attempts to strike a delicate balance between fostering industry growth and protecting consumers amid the intrinsic risks of crypto investments. The consultation process, still open for stakeholder feedback, will shape the final regulatory framework expected to launch in early 2026.
AML Editor’s article was originally published in coininsider on Sep 18, 2025