On 9 January 2025, the Government introduced the Financial Services and Markets Act 2000 (Collective Investment Schemes) (Amendment) Order 2025/17 (the Order) which has been laid before Parliament, along with the Order's explanatory memorandum.
Background
While cryptoasset staking is not directly regulated under existing legislation as a regulated activity, there had been regulatory uncertainty with certain arrangements potentially falling within the scope of regulation as a Collective Investment Scheme (CIS).
The Order
The Order comes into force on 31 January 2025 and provides regulatory clarity by confirming that "Arrangements for qualifying cryptoasset staking do not amount to a collective investment scheme".
Qualifying cryptoasset staking is defined as "the use of a qualifying cryptoasset in blockchain validation" and the Order goes on to define blockchain validation as "the validation of transactions on – (a) a blockchain; or (b) a network that uses distributed ledger technology or other similar technology".
Broadly, for these purposes, qualifying cryptoassets are any cryptoasset which is (a) fungible and (b) transferable, as set out in paragraph 26F of Schedule 1 to the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO).
The accompanying explanatory memorandum is helpful in setting out the intentions and objectives of the Order as it clarifies that the Government recognises that "existing UK rules for collective investment schemes may not provide appropriate regulation of staking arrangements" and that it would be "undesirable for arrangements for qualifying cryptoasset staking to be treated as a collective investment scheme".
What do you need to comply with?
While cryptoasset staking arrangements will not fall within the scope of CIS rules, firms will still need to ensure that they are compliant with rules on financial promotions under the FPO and relevant Financial Conduct Authority (FCA) rules and guidance.
The explanatory memorandum makes clear that while staking is not subject to CIS rules, there needs "to be an appropriate degree of consumer protection from the risks associated with the marketing of staking products" and this is achieved through compliance with the financial promotion regime.
Our comments
This is a welcome development for the cryptoasset sector. Industry participants have long been asking for regulatory clarity on staking services and this is a positive step towards welcoming a regulatory environment. It will be interesting to see how regulatory developments for cryptoassets progress, especially following the Government's call for the FCA to support and regulate for growth.
The next step for developing the UK's regulatory environment for cryptoassets will be the publication of the FCA's discussion paper on trading platforms, intermediation, lending, staking and a prudential sourcebook, which is due in Q1/Q2 this year.
Please get in touch if you would like to discuss how the collective investment scheme rules or financial promotion rules may apply to your business.