United Kingdom

1. Legal Status

DeFi is not prohibited in the United Kingdom, but it is subject to an expanding regulatory perimeter. The UK does not have a single "DeFi law." Instead, DeFi activities are regulated through existing financial services legislation — primarily the Financial Services and Markets Act 2000 (FSMA 2000) and the Financial Services and Markets Act 2023 (FSMA 2023) — supplemented by anti-money-laundering regulations and an emerging bespoke cryptoasset regime scheduled to come into force on 25 October 2027.

The FCA distinguishes between three categories of tokens:

DeFi protocols that facilitate activities involving security tokens or e-money tokens are already within the FCA's regulatory perimeter. For unregulated tokens, the current regime is limited to AML/CTF registration under the Money Laundering Regulations 2017 (MLR 2017) and the financial promotions regime under s.21 FSMA 2000. This will change dramatically under the new cryptoasset regime, which will bring trading, dealing, arranging, custody, staking, and lending/borrowing of "qualifying cryptoassets" within the scope of regulated activities.

The FCA has confirmed that truly decentralised arrangements — where no person is undertaking activity by way of business — will remain outside scope. However, where there is an identifiable "controlling person" carrying on regulated cryptoasset activities, regulation applies regardless of the technology used.

Source: FCA, "A new regime for cryptoasset regulation" (accessed March 2026)

Source: Freshfields, "Unpacking the FCA's Proposed Exemption for 'Truly Decentralised' DeFi Projects" (2026)

2. Regulatory Framework

2.1 Financial Services and Markets Act 2000 (FSMA 2000)

FSMA 2000 is the foundational statute for UK financial regulation. It establishes the "general prohibition" (s.19): no person may carry on a regulated activity in the UK unless authorised by the FCA or exempt. The Regulated Activities Order 2001 (RAO) specifies what constitutes a regulated activity and what constitutes a specified investment.

Until the new cryptoasset regime comes into force, most DeFi tokens are not specified investments under the RAO — meaning that DeFi lending, trading, and custody activities involving these tokens do not trigger the general prohibition. The exception is security tokens, which the FCA has confirmed fall within existing RAO categories (e.g., shares, debt instruments, collective investment schemes).

Source: Financial Services and Markets Act 2000 (legislation.gov.uk)

2.2 Financial Services and Markets Act 2023 (FSMA 2023)

FSMA 2023 received Royal Assent on 29 June 2023 and provides the enabling powers for the new cryptoasset regime. Key provisions:

• Section 69 amends the definition of "investment" in ss.21 and 22 of FSMA 2000 to include cryptoassets, bringing crypto financial promotions and regulated activities within the FCA's remit
• Part 1, Chapter 2 creates a regulatory framework for "digital settlement assets" (DSAs) — defined as digital representations of value that can be used for settlement of payment obligations and transferred electronically — giving HM Treasury power to designate certain stablecoins as systemic DSAs subject to Bank of England oversight
• Designated Activities Regime (DAR) — a new tool allowing HM Treasury to regulate specific activities without requiring full FCA authorisation, potentially applicable to certain DeFi functions

Source: Financial Services and Markets Act 2023 (legislation.gov.uk)

2.3 The Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026

On 15 December 2025, HM Treasury laid the draft Statutory Instrument (SI). On 4 February 2026, the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026 were made by Parliament. The Regulations amend the RAO to create new categories of cryptoassets:

Six new regulated activities are created:

1. Issuing qualifying stablecoins in the UK
2. Operating a qualifying cryptoasset trading platform (CATP)
3. Dealing in qualifying cryptoassets (as principal or agent)
4. Arranging deals in qualifying cryptoassets
5. Safeguarding and custody of qualifying cryptoassets
6. Qualifying cryptoasset staking

The regime comes into force on 25 October 2027. There is no automatic conversion from MLR registration — all firms must obtain fresh FCA authorisation.

Source: Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026 (legislation.gov.uk)

Source: Jones Day, "United Kingdom Unveils FSMA-Based Regulatory Regime for Cryptoassets" (January 2026)

2.4 FCA Consultation Papers (December 2025)

On 16 December 2025, the FCA published three consultation papers setting out the proposed rulebook:

CP25/40 proposes that the same rules apply to DeFi where an identifiable controlling person carries on regulated cryptoasset activities — reflecting the FCA's "same risk, same regulatory outcome" principle. The FCA will consult further on DeFi-specific guidance covering indicators of control and decentralisation. As of June 2026 the FCA has confirmed it will publish that dedicated DeFi guidance consultation, plus a separate operational-resilience guidance consultation for firms using DLT, later in 2026 (announced 15 April 2026 alongside CP26/13 — see §2.8).

Source: FCA, "FCA consults on guidance on UK's future crypto regime" (15 April 2026)

Source: FCA, CP25/40: Regulating Cryptoasset Activities (December 2025)

Source: FCA, CP25/41: Admissions & Disclosures and Market Abuse Regime (December 2025)

Source: FCA, CP25/42: A Prudential Regime for Cryptoasset Firms (December 2025)

2.5 Property (Digital Assets etc) Act 2025

Received Royal Assent on 2 December 2025. Based on the Law Commission's 2023 recommendations, the Act confirms that digital assets — including crypto-tokens and NFTs — can be objects of personal property rights, even though they do not fit within the traditional two categories of personal property ("things in possession" and "things in action"). The Act establishes a third category of personal property and leaves it to the courts to develop the boundaries and rights attaching to this category.

This is foundational for DeFi because it provides legal certainty for collateral arrangements, token ownership, proprietary remedies (e.g., tracing, constructive trusts), and security interests over digital assets.

Source: Law Commission, "The Property (Digital Assets etc) Act 2025 has received Royal Assent" (December 2025)

2.6 HM Treasury Consultations

HM Treasury has published a series of consultations shaping the regime:

Source: HM Treasury, "Future financial services regulatory regime for cryptoassets (regulated activities)" (November 2024)

2.7 Bank of England — Systemic Stablecoin Regime

Under powers granted by FSMA 2023, the Bank of England (BoE) will regulate sterling-denominated stablecoins that HM Treasury recognises as "systemic." On 10 November 2025, the BoE published a consultation paper proposing:

• Issuers must hold backing assets: up to 60% in short-term UK government debt, with the remaining 40% held in unremunerated accounts at the BoE (transitional allowance of up to 95% in gilts for firms transitioning from the FCA regime)
• Joint regulation: BoE oversees prudential/financial stability risk; FCA handles conduct and consumer protection
• The regime targets stablecoins used systemically in payments — not stablecoins used solely for crypto-to-crypto trading

The consultation closed on 10 February 2026, with final rules expected in H2 2026.

Source: Bank of England, "Proposed regulatory regime for sterling-denominated systemic stablecoins" (November 2025)

The BoE consultation also proposed temporary holding limits for systemic stablecoins of GBP 20,000 per coin for individuals and GBP 10 million for businesses. The consultation closed 10 February 2026; the BoE will consult on and finalise its detailed Codes of Practice (and publish its final rules instrument and supervisory approach) in H2 2026. As of June 2026 no final BoE rules have been published.

Source: Bank of England, "Bank of England launches consultation on regulating systemic stablecoins" (November 2025)

2.8 FCA CP26/13 — Cryptoasset Perimeter Guidance (April 2026)

On 15 April 2026, the FCA published CP26/13, a consultation on draft perimeter guidance (new PERG content) clarifying which persons will need authorisation under the October 2027 regime. It covers the regulated cryptoasset activities — qualifying stablecoin issuance, safeguarding, operating a trading platform, dealing (principal/agent), arranging deals, and staking — and is intended to help firms determine whether they fall inside the perimeter. The consultation closes on 3 June 2026, with final perimeter guidance expected in autumn 2026.

CP26/13 itself does not resolve the treatment of decentralised arrangements; the FCA confirmed (in the same 15 April 2026 announcement) that dedicated DeFi guidance and separate operational-resilience guidance for DLT firms will be consulted on later in 2026. CP26/13 was published alongside other handbook consultations in the FCA's crypto roadmap (e.g. CP26/4 on Handbook application and GC26/2 on the Consumer Duty, both published 23 January 2026, closed 12 March 2026).

Source: FCA, CP26/13: Cryptoasset perimeter guidance (15 April 2026)

Source: FCA, "FCA consults on guidance on UK's future crypto regime" (15 April 2026)

2.9 Draft FSMA 2000 (Cryptoassets) (Amendment) Regulations 2026

On 21 April 2026, HM Treasury published the draft Financial Services and Markets Act 2000 (Cryptoassets) (Amendment) Regulations 2026 (draft SI numbered "2026 No. 000"; Made / Laid before Parliament dates left blank), amending the perimeter set by the Cryptoassets Regulations 2026. The draft (Reg. 2(2)) inserts a new Article 9Z10A ("Relevant qualifying stablecoin transactions") into the RAO. Article 9Z10A(1) excludes from the articles specified in paragraph (4) activity comprising or related to:

• (a) the transfer of a relevant qualifying stablecoin to another person; and
• (b) the exchange of a relevant qualifying stablecoin for another asset, including money or another relevant qualifying stablecoin.

The articles excluded (Art. 9Z10A(4)) are Article 9T (dealing in qualifying cryptoassets as principal), Article 9W (dealing as agent) and Article 9Y (arranging deals in qualifying cryptoassets). Two carve-outs apply: the exclusion does not apply (i) to a transfer/disposal subject to an obligation or right to reacquire the same or an equivalent stablecoin (Art. 9Z10A(2) — i.e. repo/lending-type arrangements), or (ii) to an exchange of a relevant qualifying stablecoin for a qualifying cryptoasset other than another relevant qualifying stablecoin (Art. 9Z10A(3)). A "relevant qualifying stablecoin" (Art. 9Z10A(5)) means a qualifying stablecoin issued, within the terms and scope of Article 9M (issuing qualifying stablecoin), by a person with Part 4A permission for that regulated activity — i.e. FCA-authorised UK stablecoin issuers, not foreign stablecoins such as USDT. The stated purpose is to facilitate stablecoin payments without forcing payment firms to obtain dealing/arranging authorisation for October 2027 while broader UK payments reforms (consultation planned Q2 2026) are completed. The exclusion does not cover stablecoin lending or borrowing. The comment window for the draft closed 22 May 2026 (responses to HM Treasury). As of 6 June 2026 the made instrument is not yet on legislation.gov.uk (a title search returns only UKSI 2026/102, the original Cryptoassets Regulations); the SI therefore remains a draft.

Source: HM Treasury, draft Financial Services and Markets Act 2000 (Cryptoassets) (Amendment) Regulations 2026 (draft SI, Art. 9Z10A text quoted verbatim) (published 21 April 2026)

Source: GOV.UK, "Policy note: Draft statutory instrument amending the Cryptoasset Regulations" (21 April 2026)

Source (commentary): Travers Smith, "The importance of paying attention: the FCA's consultation on cryptoassets perimeter guidance has been followed almost immediately by further legislative changes to the perimeter" (28 April 2026)

2.10 Authorisation Pre-Application Support Service (PASS)

The FCA's Pre-Application Support Service (PASS) for prospective cryptoasset firms became available from 11 May 2026, with pre-application meetings scheduled from July 2026 onward — ahead of the authorisation gateway opening on 30 September 2026.

Source: FCA, "A new regime for cryptoasset regulation" (accessed June 2026)

3. Legal Classification

3.1 The Law Commission's Digital Assets Report (2023)

On 28 June 2023, the Law Commission for England and Wales published its final report on digital assets. The report's central conclusion: crypto-tokens are fundamentally different from both physical assets ("things in possession") and rights-based assets ("things in action"). They should be recognised as a third category of personal property — "data objects."

A data object under the Law Commission's framework must be:

1. Composed of data represented in an electronic medium
2. Existing independently of persons and the legal system
3. Rivalrous — the use or control of the thing by one person necessarily limits its use or control by others

The concept of "control" replaces possession for this third category. Control is factual — it depends on whether a person can exclude others from the practical ability to use, deal with, or transfer the asset. This concept is critical for DeFi: when a user deposits tokens into a smart contract (e.g., a liquidity pool), the question of whether they retain "control" — or have transferred it — determines whether proprietary remedies remain available.

Source: Law Commission, "Digital Assets: Final Report" (LC 412) (June 2023)

Source: Ashurst, "Key takeaways from the Law Commission's Final Report on Digital Assets" (2023)

3.2 Property (Digital Assets etc) Act 2025

The Act gave statutory effect to the Law Commission's core recommendation. It confirms that a thing is not prevented from being the object of personal property rights merely because it is neither a thing in possession nor a thing in action. The Act deliberately does not define the third category exhaustively — leaving the courts to develop the common law.

Implications for DeFi classification:

• Governance tokens (e.g., UNI, AAVE) — personal property under the third category; holders have proprietary rights
• Liquidity provider (LP) tokens — likely personal property; represent a claim on pool assets
• Yield-bearing tokens — personal property; the characterisation of yield receipts (income vs. capital) is a separate tax question
• Wrapped tokens — personal property; may raise additional questions about the relationship between the wrapper and the underlying asset

Source: Hogan Lovells, "The Property (Digital Assets etc) Act 2025 comes into force" (2025)

3.3 FCA Token Classification

Under the current regulatory perimeter, the FCA classifies tokens as:

• Security tokens — specified investments under the RAO; subject to full FSMA conduct regulation
• E-money tokens — regulated under EMRs 2011
• Unregulated tokens — exchange and utility tokens that do not meet the criteria for security tokens or e-money tokens

Under the new regime (from October 2027), "qualifying cryptoassets" (fungible, transferable, not already specified investments) will become a distinct regulatory category. Activities involving them will require FCA authorisation.

3.4 DeFi Protocol Classification Under the New Regime

CP25/40 addresses DeFi directly. The FCA's approach:

• Truly decentralised protocols where no person carries on activity "by way of business" remain outside scope
• Protocols with controlling persons — where identifiable individuals or entities exercise meaningful control — fall within the regulatory perimeter
• The FCA identifies three factors indicating insufficient decentralisation: concentrated token governance, direct core-team treasury management, and centralised off-chain coordination (marketing, BD, governance driven by a single entity)

The FCA acknowledges that "the degree of automation or decentralisation amongst current DeFi services varies on a sliding scale" — most existing protocols will likely fall somewhere on the spectrum and could face FCA oversight.

Source: FCA, CP25/40 consultation paper (December 2025)

4. Liability Allocation

4.1 UK Jurisdiction Taskforce Legal Statement (2019)

On 18 November 2019, the UK Jurisdiction Taskforce (UKJT) — part of the LawTech Delivery Panel — published its Legal Statement on Cryptoassets and Smart Contracts. Key conclusions:

• Cryptoassets have all the legal indicia of property and should be treated as property under English law
• Smart contracts are capable of giving rise to binding legal obligations, enforceable in accordance with their terms
• A smart contract can satisfy all requirements for formation of a legally binding contract — offer, acceptance, consideration, intention to create legal relations, and certainty of terms

The Statement is not binding precedent but has strong persuasive authority. It was cited by the Law Commission and has influenced subsequent judicial decisions.

Source: UKJT, "Legal Statement on Cryptoassets and Smart Contracts" (November 2019)

4.2 Law Commission Smart Contracts Report (2021)

On 25 November 2021, the Law Commission published its advice to Government on smart legal contracts. Key findings:

• The current legal framework in England and Wales can facilitate and support smart legal contracts without the need for statutory reform
• All requirements for a legally binding contract can be met by a smart legal contract — negotiations need not be in natural language; parties can indicate offer and acceptance through deployment of and interaction with code
• Courts should interpret code by reference to what a "reasonable coder" would understand it to mean — analogous to the "reasonable person" standard in traditional contract interpretation
• Smart legal contracts should include governing law and jurisdiction clauses

This has direct implications for DeFi: protocol interactions — depositing into a pool, executing a swap, staking — may constitute binding contractual obligations under English law if the standard formation requirements are met.

Source: Law Commission, "Smart Legal Contracts: Advice to Government" (November 2021)

4.3 DAO Legal Personality

DAOs have no dedicated legal form in England and Wales. The Law Commission's DAO Scoping Paper (July 2024) analysed how existing legal categories apply:

The Law Commission concluded that unincorporated association is the most likely characterisation for "pure" governance-focused DAOs, because participants interact according to rules set out in smart contract code to carry out the non-business purpose of governing the DAO. Under this characterisation, members are only liable for their own acts or the acts of their agents — not jointly liable for all DAO obligations.

However, characterisation as a general partnership remains a risk where DAO activities could be construed as "carrying on business with a view to profit." Unlike

US state-level DAO LLC statutes, England and Wales currently offers no limited-liability wrapper specifically designed for DAOs.

The Law Commission's key recommendation: the Government should consider introducing a limited liability, not-for-profit association with flexible governance options and separate legal personality — but concluded that DAO-specific legislation is not currently needed.

Source: Law Commission, "Decentralised Autonomous Organisations (DAOs): Scoping Paper" (July 2024)

Source: Goodwin, "DAOs in English law: another (but not final) step forward" (July 2024)

4.4 Developer Liability — Tulip Trading v Bitcoin Developers

Tulip Trading Ltd v van der Laan is the landmark UK case on whether blockchain developers owe duties to token holders.

Facts: Tulip Trading (owned by Dr Craig Wright) claimed private keys controlling approximately GBP 3 billion in cryptoassets across the BSV, BTC, BCH, and BCH ABC networks were stolen by hackers. Tulip sought orders requiring developers to modify the protocol to restore access.

High Court (2022): Summarily dismissed the claim. Software developers do not owe a duty of care to users who lose their private keys.

Court of Appeal (February 2023): Reversed the High Court. The Court found it was a "serious issue to be tried" whether Bitcoin developers owe fiduciary duties to bitcoin owners. The Court of Appeal accepted (for the purpose of the strike-out application) that developers who have committed to maintaining the network's software and who are the only persons in a position to help may owe such duties.

Subsequent developments: The case was discontinued in 2024 following Craig Wright's defeat in the COPA v Wright trial, in which Mr Justice Mellor conclusively found that Wright is not Satoshi Nakamoto. However, the Court of Appeal's reasoning — that developer fiduciary duties are at least arguable — remains good law and has significant implications for DeFi protocol developers.

Source: Mayer Brown, "Stolen crypto – UK Court of Appeal opens door to software developers' legal duties" (February 2023)

Source: White & Case, "Left to their own devices: No duty arises between cryptoasset software developers / controllers and cryptoasset owners" (2024, discussing High Court decision on remand)

4.5 Smart Contract Liability Under English Law

Under English contract law, DeFi smart contract interactions can give rise to contractual liability where:

1. The parties manifest intent (e.g., by connecting a wallet and signing a transaction)
2. There is consideration (e.g., tokens deposited in exchange for LP tokens or yield)
3. The terms are sufficiently certain (the code defines the obligations)

Limitation issues: Where a smart contract causes loss due to a bug or exploit, liability theories include:

• Breach of contract — if the protocol's terms of service or the code itself constitute contractual obligations
• Negligence — developers may owe a duty of care if they know or ought to know that users rely on the code (strengthened by the Tulip Trading reasoning)
• Misrepresentation — if front-end representations about protocol behaviour are inaccurate
• Unjust enrichment — if one party is enriched at another's expense without legal justification (relevant for exploit recovery)

5. Taxation

5.1 HMRC Cryptoassets Manual

HMRC published its Cryptoassets Manual (CRYPTO10000+) providing guidance on the tax treatment of cryptoassets. The manual addresses DeFi specifically in the CRYPTO60000 series (Decentralised Finance: Lending and Staking).

Current treatment (tax years to 2025/26):

HMRC does not treat DeFi lending returns as "interest" for tax purposes.

Source: HMRC, Cryptoassets Manual: CRYPTO61110 – Decentralised Finance: Lending and staking: Introduction

Source: HMRC, Cryptoassets Manual: CRYPTO61130 – Making a DeFi loan

5.2 DeFi Tax Consultation and "No Gain, No Loss" Proposal

HM Treasury consulted on "The taxation of decentralised finance (DeFi) involving the lending and staking of cryptoassets" in 2022. The consultation response (published alongside the Autumn Budget 2025) confirmed the Government will:

• Abandon the "repo" approach (which would have treated DeFi as analogous to stock lending) in favour of a bespoke "no-gain/no-loss" (NGNL) regime
• Under NGNL, transfers into lending, staking, or liquidity pools would not trigger CGT provided the user retains the right to reclaim the same type and quantity of tokens
• The real CGT event occurs only when the user finally sells the tokens
• Returns/yield from DeFi would likely remain miscellaneous income — the Government is "not currently exploring specific provisions" to treat staking rewards as capital

HMRC has outlined potential NGNL treatment for three categories:

1. Single-token lending — deposit and withdrawal are NGNL; CGT crystallises on final sale
2. Crypto borrowing — posting collateral is NGNL; gain/loss arises on selling/repurchasing borrowed tokens
3. Automated market makers (AMMs) — deposit of tokens for LP positions is NGNL; differences in token quantities on exit are gains or losses

As of March 2026, NGNL is not yet enacted. HMRC describes it as a "potential approach" and is continuing consultations.

Source: HM Treasury, "The taxation of decentralised finance (DeFi) — Summary of responses"

Source: Freshfields, "Autumn Budget 2025: DeFining the UK rules for cryptoasset taxation" (November 2025)

5.3 Cryptoasset Reporting Framework (CARF)

From 1 January 2026, UK Reporting Cryptoasset Service Providers (RCASPs) are required to collect and report transaction data for all customers — including UK residents — to HMRC. This implements the OECD Crypto-Asset Reporting Framework. The requirement was confirmed in the Autumn Budget 2024 and reiterated in the Autumn Budget 2025.

Source: HMRC, Cryptoasset Reporting Framework guidance

6. Licensing / Registration

6.1 Current Regime: MLR 2017 Registration

Under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (as amended), cryptoasset exchange providers and custodian wallet providers must register with the FCA. This is an AML/CTF registration — not a full conduct/prudential authorisation.

Source: FCA, "Cryptoassets: How to apply for registration"

Source: CoinDesk, "UK Regulator Says 87% of Crypto Registration Applications Failed to Meet Standards" (September 2024)

6.2 Future Regime: FCA Authorisation Under FSMA

From 25 October 2027, firms carrying on any of the six new regulated cryptoasset activities must hold FCA authorisation with specific permissions.

Source: Sidley Austin, "UK Cryptoasset Regulation — Action Points for 2026–27" (January 2026)

Source: Winston & Strawn, "UK Crypto Regulation Moves Forward: A Prudential Regime for Cryptoasset Firms" (2026)

6.3 Financial Promotions

Since 8 October 2023, financial promotions for "qualifying cryptoassets" directed at UK consumers must comply with s.21 FSMA 2000. There are four lawful routes:

1. Communicated by an FCA-authorised person
2. Approved by an authorised person acting as s.21 approver
3. Communicated by a firm registered with the FCA under MLR 2017
4. Exempt under the Financial Promotion Order

Breach of s.21 is a criminal offence punishable by up to 2 years' imprisonment and/or an unlimited fine.

Between October 2023 and October 2024, the FCA issued 1,702 consumer alerts for suspected illegal crypto promotions, but only 54% resulted in the ads/websites being taken down.

Source: Taylor Wessing, "UK rules on promoting cryptoassets" (2025)

7. AML / KYC

7.1 MLR 2017 — Current AML Framework

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 apply to:

• Cryptoasset exchange providers — persons who exchange, arrange the exchange of, or make arrangements with a view to the exchange of cryptoassets for money (or vice versa), or one cryptoasset for another
• Custodian wallet providers — persons who provide services to safeguard or administer cryptoassets or private cryptographic keys on behalf of customers

Obligations include:

• Customer due diligence (CDD) — identity verification before establishing a business relationship
• Enhanced due diligence (EDD) for high-risk customers and relationships
• Ongoing monitoring of business relationships and transactions
• Suspicious activity reporting to the National Crime Agency (NCA)
• Record-keeping for at least 5 years
• Appointment of a nominated officer (MLRO)

DeFi protocols that operate without a central intermediary conducting these activities are not directly captured — a gap the new regime is designed to address by requiring authorisation of any person carrying on regulated cryptoasset activities "by way of business."

Source: FCA, "Cryptoassets: Who needs to register"

7.2 Travel Rule

The UK implemented the Travel Rule for cryptoassets on 1 September 2023, through amendments to MLR 2017. The rule requires cryptoasset businesses to collect, verify, and share originator and beneficiary information for cryptoasset transfers.

Key features:

Source: FCA, "FCA sets out expectations for UK cryptoasset businesses complying with the Travel Rule" (2023)

Source: Notabene, "Travel Rule Crypto in United Kingdom" (2025)

7.3 Sanctions Compliance

The Office of Financial Sanctions Implementation (OFSI) — part of HM Treasury — administers UK financial sanctions. In July 2025, OFSI published a Cryptoassets Threat Assessment identifying key compliance risks:

• Since January 2022, over 7% of all suspected breach reports to OFSI involved cryptoasset firms
• OFSI assesses it is "almost certain" that UK cryptoasset firms have underreported suspected breaches since August 2022
• Primary threat actors: Russia, North Korea, Iran
• Evasion methods: VPNs, mixers, darknet platforms, nested exchanges
• OFSI calls for improved transaction monitoring and reporting, with firms directed to include the reference "OFSI – Cryptoassets Threat Assessment – 0725" in suspicious activity reports

All UK persons — including DeFi participants — are subject to UK financial sanctions. This applies regardless of whether the activity occurs on a centralised exchange or a decentralised protocol.

Source: OFSI, "Cryptoassets Threat Assessment" (July 2025)

Source: K&L Gates, "UK Office for Financial Sanctions Implementation Crypto-Assets Threat Assessment" (July 2025)

8. Enforcement

8.1 FCA Enforcement Actions

The FCA's enforcement activity in the crypto space has primarily targeted:

Unregistered businesses:

• The FCA maintains a public warning list of firms operating without registration. Between 2020 and 2024, the FCA issued 45 directions under Regulation 74C of MLR 2017, requiring cryptoasset firms to take specific actions (24 in 2021 alone, tapering to 4 in 2024).

Financial promotions:

• The FCA brought its first enforcement action against an offshore cryptoasset exchange — HTX (formerly Huobi) — for breach of s.21 FSMA. The FCA issued High Court (ChD) proceedings on 21 October 2025 against Huobi Global S.A. (Panama) and Persons Unknown, alleging HTX published financial promotions on its website and social media (TikTok, X, Facebook, Instagram, YouTube) targeting UK consumers without authorisation; the FCA seeks a declaration of breach and injunctive relief. On 4 February 2026 the Court granted permission to serve out of the jurisdiction and by alternative means, and the FCA publicised the action on 10 February 2026. Following commencement, HTX restricted new UK registrations, but the FCA noted existing UK users could still access the promotions and HTX remains on the FCA Warning List.
• Russia sanctions (26 May 2026): Separately, the same operating entity — Huobi Global S.A. (aliases "HTX (formerly Huobi)", "HTX Exchange", "Huobi Global Limited"; Panama-registered, Folio Nº 155737650), Unique ID RUS3619, date designated 26/05/2026 — was designated under the Russia (Sanctions) (EU Exit) Regulations 2019, becoming the first crypto exchange designated under the UK's Russia sanctions framework. Per the OFSI Sanctions Notice, the sanctions imposed are: Asset freeze, Trust Services Sanctions, Director Disqualification Sanction, Internet Services Sanctions, Correspondent Banking Sanctions and processing payments. The UK statement of reasons records that the Secretary of State considers there are reasonable grounds to suspect Huobi Global SA is or has been involved in obtaining a benefit from or supporting the Government of Russia by providing financial services (or making available funds, economic resources, goods or technology) to A7 Limited Liability Company and to Garantex Europe OU, each carrying on business in a sector of strategic significance to the Government of Russia. UK persons — including DeFi participants — must freeze any funds/economic resources of the entity, not deal with or make them available, and report to OFSI.
• In June 2025, the FCA participated in a coordinated international enforcement week, making 3 arrests, authorising criminal proceedings against 3 individuals, interviewing 4 "finfluencers," sending 7 cease-and-desist letters, and issuing 50 warning alerts.

DeFi-specific enforcement:

• As of March 2026, the FCA has not brought a DeFi-specific enforcement action. The FCA's DeFi enforcement posture is expected to develop once the new cryptoasset regime commences in October 2027.

Source: FCA, "FCA takes action against HTX to stop illegal financial promotions" (10 February 2026)

Source: OFSI / FCDO, Sanctions Notice: Russia, 26 May 2026 — Huobi Global S.A. entry (Unique ID RUS3619), designation details quoted verbatim (26 May 2026); GOV.UK, UK Sanctions List — Huobi Global S.A. designation (RUS3619)

Source: FCA, "Information on cryptoasset firms — January 2025" (January 2025)

8.2 Key Court Cases

Fetch.ai v Persons Unknown & Binance (2021): Fetch.ai suffered a USD 2.6 million hack through its Binance account. The High Court (HHJ Pelling QC) granted a worldwide freezing order, proprietary injunctive relief, a Bankers Trust order against Binance Holdings, and a Norwich Pharmacal order against Binance Markets — requiring Binance to disclose information about the hackers. The case demonstrated that English courts have robust tools to grant proprietary remedies over cryptoassets, including against exchanges.

Source: Fieldfisher, "Order, order: Fetch.AI case enhances English courts' approach to crypto fraud" (2021)

Tulip Trading v van der Laan (2023): As discussed in Section 4.4, the Court of Appeal found developer fiduciary duties are an arguable claim. Discontinued in 2024 but the legal reasoning stands.

COPA v Wright (2024): While not a DeFi case, the High Court's definitive finding that Craig Wright is not Satoshi Nakamoto resolved uncertainties around the ownership of early Bitcoin holdings and led to the discontinuation of Tulip Trading.

8.3 Cross-Border Enforcement Cooperation

The FCA participates in multiple international enforcement networks:

• IOSCO Crypto-Asset Roadmap — international coordination on crypto-asset regulation
• Global Financial Innovation Network (GFIN) — regulatory sandbox cooperation
• FATF mutual evaluations — the UK underwent its most recent FATF mutual evaluation in 2018 (rated "compliant" or "largely compliant" on most recommendations); a follow-up review reflects the 2023 Travel Rule implementation
• The FCA's HTX enforcement action demonstrates willingness to pursue offshore entities serving UK consumers

9. Recent Developments (2024–2026)

9.1 Timeline of Key Developments

9.2 FCA's DeFi Approach

The FCA's approach to DeFi is crystallising through several strands:

• CP25/40 proposes applying the same substantive rules to DeFi activities where a controlling person can be identified — including mandatory over-collateralisation for retail DeFi lending (max 50% LTV), prohibition on proprietary tokens in lending arrangements, and express prior consent requirements for staking
• DP25/1 (May 2025) outlined early thinking on the "truly decentralised" exemption — acknowledging a spectrum rather than a binary classification
• CP26/13 (15 April 2026) consulted on perimeter guidance for the seven regulated activities but did not resolve DeFi/decentralised arrangements; the FCA confirmed a dedicated DeFi guidance consultation (and a separate DLT operational-resilience consultation) will follow later in 2026
• The FCA has committed to further DeFi-specific consultation on indicators of control, interaction with DeFi models, and operational resilience/financial crime good practices
• Extraterritorial reach: the FCA's rules will apply to any person carrying on regulated cryptoasset activities in or from the UK, or serving UK consumers — regardless of where they are incorporated

9.3 Comparison with

EU MiCA

The UK regime differs from the

EU Markets in Crypto-Assets Regulation (MiCA) in several important respects:

9.4 Digital Securities Sandbox

The Bank of England and FCA operate a Digital Securities Sandbox (DSS), which allows firms to test the use of distributed ledger technology for the issuance, trading, and settlement of digital securities within a modified regulatory environment. The sandbox permits the use of certain regulated stablecoins as settlement assets. This is relevant for DeFi insofar as it may provide a pathway for regulated DeFi-like services to operate within the UK's existing financial market infrastructure.

Source: Bank of England, "Proposed regulatory regime for sterling-denominated systemic stablecoins" (November 2025)

10. Assessment

10.1 What Works

1. Coherent legal foundation. The combination of the UKJT Legal Statement (2019), Law Commission reports (2021, 2023), Property (Digital Assets etc) Act 2025, and DAO Scoping Paper (2024) gives the UK arguably the most developed common-law framework for digital assets globally. The "third category" of personal property is a genuine legal innovation.

2. Pragmatic DeFi perimeter. The FCA's "truly decentralised" exemption — while still undefined — is a more nuanced approach than the

   EU's blanket MiCA exclusion. By acknowledging a spectrum of decentralisation and proposing to regulate based on the presence of a controlling person, the FCA avoids both under-regulation and stifling innovation.

3. Comprehensive scope. Unlike MiCA, the UK regime explicitly captures staking, lending, and borrowing — the core DeFi activities. This provides regulatory clarity that the

   EU currently lacks.

4. Smart contract enforceability. The Law Commission's confirmation that English law supports smart legal contracts without statutory reform — and the "reasonable coder" interpretation standard — provides a strong foundation for DeFi contract disputes.

10.2 What Doesn't Work

1. Implementation lag. The regime will not commence until October 2027 — more than four years after FSMA 2023 received Royal Assent. During this interim period, most DeFi activity remains outside the conduct perimeter, leaving consumers reliant on the financial promotions regime and MLR registration alone.

2. No DAO entity. The Law Commission's conclusion that DAO-specific legislation is not currently needed leaves a gap. Without a limited-liability wrapper, DAO participants in England and Wales face the risk of general partnership characterisation and unlimited joint liability — a significant deterrent for legitimate DeFi governance structures.

3. Registration bottleneck. The 87% first-application failure rate for MLR registration and the historical 6-12+ month processing times raise concerns about the FCA's capacity to process the much larger volume of full authorisation applications expected under the new regime, particularly during the compressed gateway window (September 2026 to February 2027).

4. Tax uncertainty. The NGNL approach for DeFi taxation has been proposed but not enacted. Practitioners remain subject to the current disposal-based approach, which creates significant compliance burdens for active DeFi participants (every deposit into a lending pool or liquidity pool is potentially a taxable disposal).

5. DeFi decentralisation test undefined. The FCA has not yet published the criteria for determining whether a protocol is "truly decentralised." Until this guidance is finalised, DeFi protocol developers and users lack certainty about whether their activities fall within the regulatory perimeter.

10.3 Key Lessons

• Common law adaptability: The UK demonstrates that common law systems can accommodate digital assets through judicial development and targeted statutory reform, without wholesale legislative overhaul
• Property law matters: Recognising digital assets as property unlocks existing remedies (tracing, freezing orders, constructive trusts) — as demonstrated in Fetch.ai v Binance — providing practical enforcement tools
• Regulation by activity, not technology: The UK's approach of regulating the activity (dealing, arranging, custody) rather than the technology (blockchain, smart contract) provides a technology-neutral framework adaptable to future DeFi innovations
• International positioning: The UK is developing a framework that is more comprehensive than MiCA in its DeFi coverage but potentially less accessible due to the absence of passporting — a competitive dynamic that will shape where DeFi firms choose to establish

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Related coverage

United Kingdom in other research domains:

• CBDC Frameworks
• Crypto Mining Regulations
• Digital Asset Insurance & Risk Transfer
• Digital Asset License Map
• Digital Asset Taxation
• Institutional Crypto Custody Regulations
• NFT & Digital Collectibles Regulations
• Payment Services & Crypto Payment Regulation
• Stablecoin Regulations & License Regimes
• Tokenized Real-World Assets (RWA) Regulation

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Verification Notes

Research conducted: 20 March 2026; refreshed 4 June 2026

Corrections / updates made in the 4 June 2026 refresh:

• Added §2.8 (FCA CP26/13 Cryptoasset Perimeter Guidance, published 15 April 2026, closes 3 June 2026), §2.9 (draft FSMA 2000 (Cryptoassets) (Amendment) Regulations 2026, published 21 April 2026 — new RAO Art. 9Z10A stablecoin dealing/arranging exclusion, comments closed 22 May 2026), and §2.10 (PASS pre-application service from 11 May 2026). Sources: fca.org.uk, traverssmith.com.
• §8.1: HTX enforcement — clarified the FCA issued High Court (ChD) proceedings on 21 October 2025 and publicised the action on 10 February 2026 (the file previously implied the action was "brought" in February 2026; February 2026 was the publicity/service-out date, not the filing date). Replaced the secondary Prokopiev Law source with the primary FCA press release. Source: fca.org.uk.
• §8.1: Added the 26 May 2026 designation of Huobi Global S.A. (HTX) under the UK Russia (Sanctions) (EU Exit) Regulations 2019 — first crypto exchange so designated. Verified via the GOV.UK UK Sanctions List entry (RUS3619) and corroborated by multiple media reports; the OFSI Sanctions Notice PDF (26 May 2026) did not render its entity table cleanly via automated fetch — flagged below.
• §2.7: Added BoE proposed holding limits (GBP 20,000/individual; GBP 10m/business) and clarified final BoE Codes of Practice / rules are due H2 2026 (none yet published as of June 2026).
• §9.2 / forward references: Noted CP26/13 did not resolve DeFi treatment; dedicated DeFi guidance now expected later in 2026. FCA final rules/policy statements timing confirmed as "summer 2026" per FCA April 2026 announcement.
• No change to NGNL tax status (still proposed, not enacted as of June 2026) or the Property (Digital Assets etc) Act 2025 (in force since 2 December 2025) — both re-verified.

Primary sources consulted:

• Financial Services and Markets Act 2000 (legislation.gov.uk)
• Financial Services and Markets Act 2023 (legislation.gov.uk)
• Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026 (legislation.gov.uk)
• FCA consultation papers CP25/40, CP25/41, CP25/42 (fca.org.uk)
• Law Commission Digital Assets Final Report LC 412 (lawcom.gov.uk)
• Law Commission DAO Scoping Paper (lawcom.gov.uk)
• Law Commission Smart Legal Contracts Advice (lawcom.gov.uk)
• UKJT Legal Statement on Cryptoassets and Smart Contracts (technation.io)
• Bank of England systemic stablecoin consultation (bankofengland.co.uk)
• HMRC Cryptoassets Manual CRYPTO60000+ (gov.uk)
• HM Treasury DeFi tax consultation response (gov.uk)
• OFSI Cryptoassets Threat Assessment (publishing.service.gov.uk)

Secondary sources consulted:

• Sidley Austin, Jones Day, Freshfields, Winston & Strawn, Mayer Brown, Hogan Lovells, White & Case, Norton Rose Fulbright, Goodwin — law firm analysis pieces (all verified via WebFetch/WebSearch)

Verification status:

• All statutes and statutory instruments verified against legislation.gov.uk
• All FCA consultation papers verified against fca.org.uk
• Law Commission reports verified against lawcom.gov.uk
• Court decisions verified against judiciary.uk and law firm analyses
• HMRC guidance verified against gov.uk
• Capital requirement figures verified against Winston & Strawn analysis of CP25/42
• Registration statistics verified against FCA FOI response and CoinDesk reporting
• OFSI threat assessment verified against publishing.service.gov.uk PDF

Data gaps and caveats:

• The "truly decentralised" exemption criteria have not yet been defined by the FCA — analysis based on DP25/1 and CP25/40 proposals
• NGNL tax treatment is a proposed approach, not enacted legislation
• FCA registration statistics are approximate; the FCA does not publish real-time totals in a standardised format
• The Cryptoassets Regulations 2026 commencement date (25 October 2027) is subject to potential change via further statutory instrument
• The Tulip Trading case was discontinued; the Court of Appeal reasoning on developer fiduciary duties remains untested at trial
• The 26 May 2026 Huobi Global S.A. sanctions designation (Unique ID RUS3619) is confirmed verbatim from the OFSI/FCDO Russia Sanctions Notice of 26 May 2026 (PDF text extracted directly), including the full list of measures and the A7 / Garantex statement of reasons — see the 2026-06-06 gap-closure entry below
• The FSMA 2000 (Cryptoassets) (Amendment) Regulations 2026 (Art. 9Z10A) remains a draft instrument (comments closed 22 May 2026), not yet made: a legislation.gov.uk title search on 6 June 2026 returns only UKSI 2026/102 (the original Regulations), so no made SI exists yet. The Art. 9Z10A text is now quoted from the primary HMT draft SI PDF (not from secondary commentary)

Targeted gap-closure pass (2026-06-06):

• Gap closed — Art. 9Z10A sourcing (§2.9): Fetched the primary HMT draft SI PDF (publishing.service.gov.uk/media/.../Crypto_SI_Amendment.pdf) and extracted Article 9Z10A verbatim. Was: Art. 9Z10A text sourced from Travers Smith's analysis of HMT's draft (secondary). Now: text sourced directly from the HMT draft SI itself, with the precise paragraph structure — exclusion of transfer (9Z10A(1)(a)) and exchange (9Z10A(1)(b)) of a relevant qualifying stablecoin from Articles 9T/9W/9Y (9Z10A(4)); the two carve-outs (repo/reacquire obligation 9Z10A(2); exchange for a non-stablecoin qualifying cryptoasset 9Z10A(3)); and the Art. 9M / Part 4A-permission definition of "relevant qualifying stablecoin" (9Z10A(5)). Travers Smith demoted to commentary. The draft SI's own face confirms its status: numbered "2026 No. 000" with Made/Laid dates blank. Status (draft, not made) re-confirmed against a legislation.gov.uk title search (6 June 2026 → only UKSI 2026/102), so the "made SI on legislation.gov.uk" portion of the gap stays factually open (no made instrument exists), but the sourcing is now primary. Source: https://assets.publishing.service.gov.uk/media/69e6334d44a079b27f997f89/Crypto_SI_Amendment.pdf
• Gap closed — OFSI Russia notice / RUS3619 (§8.1): Fetched the OFSI/FCDO Russia Sanctions Notice (26 May 2026) PDF and extracted the Huobi Global S.A. entry verbatim. Was: asset-freeze/measures detail corroborated only by secondary media (BeInCrypto), the OFSI PDF table "did not parse cleanly". Now: the full designation is quoted directly from the primary OFSI notice — Unique ID RUS3619; aliases HTX (formerly Huobi) / HTX Exchange / Huobi Global Limited; Panama Folio Nº 155737650; date designated 26/05/2026; measures = Asset freeze, Trust Services Sanctions, Director Disqualification Sanction, Internet Services Sanctions, Correspondent Banking Sanctions and processing payments; regime = The Russia (Sanctions) (EU Exit) Regulations 2019; statement of reasons naming A7 Limited Liability Company and Garantex Europe OU. The §8.1 prose was expanded to reflect the primary text; the secondary media corroboration is no longer needed for the measures detail. Source: https://assets.publishing.service.gov.uk/media/6a1578669819be865f421cf1/Sanctions_Notice_Russia_26_May_2026.pdf