Crypto regulatory round up

January 2025

Frameworks begin applying

The final months of 2024 saw major advances of cryptoasset regulatory frameworks in the EU and UK. After years of deliberation, the EU’s landmark package of reform the Markets in Cryptoassets Regulation (MiCAR) – is now live. This will soon be complemented by a permanent prudential regime for relevant exposures in credit institutions. The UK, which has consistently remained a second — mover, has now laid out a clear timeline for its own next steps. Specifically, the first of several expected discussion papers — on trading disclosures and market abuse – has been issued.

The remaining elements of the Markets in Cryptoassets Regulation (MiCAR)opens in a new tab began applying from 30 December 2024. A transitional regimeopens in a new tab embedded within MiCAR grants cryptoasset services providers (CASPs) additional time until 1 July 2026 to transition from existing national frameworks. However, certain Member States have opted to disapply or reduce this timeframe, resulting in a patchworkopens in a new tab of different durations to be navigated. Firms that do become authorised under MiCAR will also need to comply with the Digital Operational Resilience Act (DORA)opens in a new tab that went live earlier in January.

The implementation date for the BIS’s prudential standards for bank cryptoasset exposures has been deferred by one year until 1 January 2026. Despite push-back from industry, these standards require “unbacked cryptoassets and stablecoins with ineffective stabilisation mechanisms” to be subject to the highest possible one-for-one capital charges. There is also an overall limit on banks’ exposures to these types of assets.

To address this within the EU, the CRR3opens in a new tab had already introduced a transitional capital regime, applicable from July 2024. However, the EBA has now also launched a consultationopens in a new tab further developing this capital treatment for various types of risk (credit risk, CCR, market risk and CVA risk) and seeking to align it more closely to the BIS. The consultation proposes specific risk weights – 250% for Asset-Referenced Tokens (ARTs) (to reflect their partial backing by traditional assets) and 1,250% for unbacked cryptoassets (to account for their volatility and “lack of intrinsic value”).

EIOPA has also published a consultationopens in a new tab on equivalent capital requirements for insurers. Despite current cryptoasset exposures remaining immaterial (0.0068% of European insurers’ total investments), EIOPA is proposing a 100% haircut to any holdings – regardless of their balance sheet treatment and investment structure. 

Recent researchopens in a new tab from the FCA shows that crypto ownership in the UK continues to rise, with 12% of adults now owning these assets. More interestingly, a third of respondents incorrectly believe they could seek recourse with the FCA if something went wrong.

Since coming to power in July 2024, the Labour government has reiteratedopens in a new tab its intention of proceeding with majority of plans brought forward by the previous Cabinet. In short, a number of new cryptoasset regulated activities will be created based on equivalents in traditional finance. However, this work will now be combined into a single phase, rather than addressing stablecoins separately. And proposalsopens in a new tab to include stablecoins within UK payment regulations have been scrapped — due to lack of a viable ‘use case’.

To progress these plans, the latest FCA Roadmapopens in a new tab indicates that 2025 will be a year of consultations, with final policy statements to follow in 2026. The first Discussion Paper in the series — DP24/4opens in a new tab on Admissions & Disclosures and the Market Abuse Regime — came out just before Christmas and aligns closely with the original HMT proposalsopens in a new tab. 

Key highlights include:

With regards to a prudential framework, unlike the EU, until recently the UK was yet to make any progress.  However, the BoE has now published a request for informationopens in a new tab on firms’ cryptoasset exposures – noting that this will be used to inform the calibration of their approach.

The government has announced plans to issue a digital gilt (DIGIT) within the recently-launched Digital Securities Sandboxopens in a new tab.

Clarification has been made that cryptoasset staking does not constitute a Collective Investment Scheme – by introducing a Statutory Instrumentopens in a new tab before parliament.

The Law Commission’s draft Property (Digital Assets) Billopens in a new tab is currently being considered by the House of Lords. This Bill would confirm the existence of a “third” category of personal property, into which certain digital assets could fall, thereby giving investors increased legal protection.

And, the BoE have issued a progress updateopens in a new tab and blueprint design noteopens in a new tab on a prospective digital pound, after entering the ‘design phase’ back in January 2024. The decision of whether or not to actually issue a digital pound remains several years out – and could only come via new primary legislation. 

Firms should firstly ensure that they have designed an appropriate regulatory authorisation strategy — i.e., identifying optimal jurisdictions in which to establish themselves. This should include considerations around transitioning from any relevant temporary regimes towards full authorisation. The strategy should also consider the connection to any wider operational resilience frameworks (e.g., DORA).

Firms can also begin building their capabilities around the preparation of trading admissions documentation—this is already required under MiCAR and will soon be required under the upcoming UK regime.

And firms can explore technological options to meet market abuse requirements. Regulators, particularly in the UK, have emphasised their support for the use of potential industry-led solutions. 

KPMG in the UK can support firms – including both traditional finance firms and crypto native firms – with the wide range of challenges stemming from these developments. If you have any questions or would like to discuss further, please get in touch.