UK envisions more competitive approach for crypto prop traders

The government has proposed changes to the UK’s crypto regulatory regime. The changes include providing more flexibility for firms to provide market making services without needing a UK licence.

New amending regulations

Parliament made legislation earlier this year to establish a regulatory regime for cryptoassets in the UK. The regime starts to apply on 25 October 2027.

HM Treasury has published the Financial Services and Markets Act 2000 (Cryptoassets) (Amendment) Regulations 2026 in draft. These Amendment Regulations make targeted changes to the crypto regime.

Proprietary trading exclusion

Among the changes, a new exclusion is added to the regulated activity of dealing in qualifying cryptoassets as principal. The exclusion applies where the activity is not carried on for the purpose of providing a service (i) to a client, and (ii) related to the carrying on of a regulated activity on behalf of that client.

According to HMT, the exclusion is required to avoid an “uncompetitive dynamic”. Requiring UK firms to seek a licence from the Financial Conduct Authority for crypto dealing when they trade on own account and do not provide a service to a client would have pushed crypto prop traders offshore. With this change, firms would not need to be licensed to provide market making services (but would need permissions if they provide other in-scope activities such as dealing as agent).

Other changes

The Amendment Regulations also change other aspects of the regime, including:

• CSDs: Currently central securities depositories and their nominees are exempt from the Article 40 RAO safeguarding activity. The government proposes applying a similar exemption to crypto safeguarding so that the same policy applies to tokenised securities that fall within the crypto investments regime.

• Stablecoins: As things stand, firms seeking to provide stablecoin payment services are likely to fall within the cryptoasset perimeter for dealing or arranging under the crypto regime. The government proposes excluding stablecoin payments firms from having to be licensed for these dealing activities. See our blogpost: UK to bring stablecoins into payment services regulation.

• Financial promotions: The UK's restriction on financial promotions will align with the crypto investments regime. The Amending Regulations add the future regulated activity of issuing a qualifying stablecoin as a controlled activity so that it is caught by the financial promotions regime. Payments transactions involving UK-issued qualifying securities will generally be exempt, provided they do not relate to lending or borrowing arrangements.

HMT invites feedback on the Financial Services and Markets Act 2000 (Cryptoassets) (Amendment) Regulations 2026 by 22 May 2026. Firms should factor the proposed changes into their preparations to implement the UK cryptoasset regime and keep an eye on any further edits to the Amendment Regulations once laid before Parliament.