The UK Crypto Regime is Underway. Is your Firm Ready?
Virtusa and Valentia Partners recently hosted a senior-level roundtable to examine the UK’s fast-approaching cryptoasset authorisation regime, as this marks a fundamental transformation of the regulatory landscape for every firm operating in this space. The roundtable brought together practitioners across the cryptoasset ecosystem to discuss the new regime and share insights on how firms are approaching authorisation.
Authors
The UK is moving from a relatively light-touch Money Laundering Regulations (MLR) registration framework to full FSMA-based authorisation. For cryptoasset service providers, that means stepping inside the same regulatory perimeter as investment firms, with all the obligations that follow, including capital requirements, conduct rules, senior manager accountability, client asset safeguarding and financial promotions controls, among others. The compliance bar is high and the window to prepare is narrowing. Therefore, it is crucial for firms to prepare now.
Key Themes from the Roundtable
The FCA regulates operational reality, not documentation
The most consistent message from discussions was that the FCA will assess what firms actually do, not just what their policies say. Customer terms, technology architecture and operational practice must all tell the same story. Firms that build compliance frameworks on paper while their operations lag behind will face scrutiny. Therefore, the starting point for any authorisation strategy has to be a transparent audit of current operations, not an aspirational description of future intent.
Custody is a matrix, not a single question
Custody arrangements drew significant discussion. The practical framework that emerged was that institutional clients expect segregated custody with individually identifiable accounts, while retail clients typically receive omnibus arrangements with beneficial interest records. For digital assets specifically, the operational mechanics of both models are still being worked through on an asset-by-asset basis. Firms should think about custody as a two-dimensional matrix: client type on one axis, asset type on the other.
Individual accountability under SMCR
The Senior Managers and Certification Regime (SMCR) will apply in full. Senior managers will be personally accountable for defined areas of their firm's operations, with SMF16 (compliance oversight) and SMF17 (money laundering reporting) as specific designated functions. The MLRO geography question, where the individual must be physically based, remains open despite FCA guidance suggesting some flexibility.
The perimeter is wider than expected
A significant concern raised by participants was that the FCA's draft perimeter guidance draws the regulatory boundary more broadly than anticipated. Wallet software firms, DeFi front-ends, staking interfaces, and technology providers that were not the obvious target of the regime may find themselves caught. The arranging definition in particular was flagged as broader than other definitions and may require further clarification. Firms in adjacent positions need to assess their exposure and engage with the FCA proactively rather than hope the boundary resolves in their favour.
Stablecoins: A dual-regulator problem
Stablecoins that reach systemic scale will fall under Bank of England (BoE) supervision as well as FCA oversight, creating materially different expectations from two regulators simultaneously. Firms building stablecoin strategies should not assume that FCA authorisation covers the full picture. BoE supervision brings its own demands, and the two frameworks are not fully aligned.
What This Means by Firm Type
The roundtable made clear that the regime’s implications differ significantly depending on where a firm sits in the ecosystem.
Core custodians and exchanges will get licensed. The regime was built with them in mind and the path, though demanding, is clear. The question here is not whether to apply, but how to build an application fully aligned to FCA expectations.
Peripheral providers, such as wallet software firms, staking front-ends and DeFi interfaces, face a genuine binary choice. Either commit to full UK authorisation with the infrastructure investment required, or exit the UK market. There is no comfortable middle ground under the new perimeter.
Cross-border payment firms face a strategic choice. Either partner with an MLR-registered or authorised firm and accept the margin dilution that brings, or pursue full licensing themselves.
For MiCAR-authorised EU firms, their EU authorisation is not directly transferable to the UK. The regimes differ meaningfully on custody geography, capital requirements and stablecoin mechanics, among others. However, existing compliance investment is a significant head start for UK authorisation.
What Questions Remain
The roundtable surfaced several open questions that will materially affect how the regime lands in practice.
Secondary market treatment of tokenised traditional assets, including digital Gilts, and which depositories will be involved in settlement remains unresolved.
UK competitive positioning was openly debated. Building the regime on FSMA rather than purpose-built legislation (as the EU did with MiCAR, or the UAE with VARA) is a considered choice, but whether this helps or hinders the UK’s position as a leading jurisdiction for digital assets remains contested.
Practical Guidance for Firms
Two pieces of tactical advice emerged consistently from across the table:
Apply only for what you need. Firms should apply only for the permissions with a clear short-to-medium term business rationale. Applying for everything available to preserve future optionality will generate scrutiny and complexity without corresponding benefit.
Engage with the FCA early. Given the breadth of the existing perimeter guidance, firms should seek pre-application engagement with the FCA as early as possible.
How Virtusa and Valentia Partners Can Help
Navigating the UK's evolving cryptoasset regime requires legal, regulatory and operational considerations to come together in a practical way. Virtusa and Valentia Partners support firms at every stage of the journey, from assessing the impact of the new regime, defining an authorisation strategy and engaging with the FCA, through to designing and implementing the governance, compliance and operating frameworks needed to support a credible application.
Whether you are exploring your options, preparing for authorisation or addressing specific regulatory challenges, our teams provide practical, tailored support aligned to your business model and strategic objectives.
To discover more or talk to us about anything you've read here please don't hesitate to get in touch.
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