UK as a Crypto Hub: Ambitions, Policies, and Real-World Restrictions

The UK once promised to become the world’s leading crypto hub. In 2023, then-Prime Minister Rishi Sunak declared the country would be the most crypto-friendly nation on earth. But today, that vision is stuck in neutral. While the rules are getting clearer, the political will has faded. And for the 7 million UK adults who own crypto, that means uncertainty - not opportunity.

What the UK Actually Regulates - and What It Doesn’t

The UK didn’t ban crypto. It didn’t shut it down. Instead, it built a thick wall around it - one made of rules, paperwork, and compliance checks. The core of this system is the FCA the UK’s Financial Conduct Authority, which regulates financial services and markets, including cryptoasset activities. Since 2023, any crypto business serving UK customers must register with the FCA. That includes exchanges, wallet providers, and even crypto ATMs.

But here’s the catch: only certain activities are regulated. Right now, the FCA’s main focus is on fiat-backed stablecoins digital tokens pegged to traditional currencies like the pound or dollar, used for payments and transfers. If a company issues or trades USDC or GBP-backed tokens in the UK, it needs FCA approval. That’s because these tokens are treated like payment systems - not speculative assets.

Everything else? Still gray. Bitcoin, Ethereum, Solana - these aren’t classified as securities, but they’re not fully regulated either. That means you can buy them. You can hold them. But if you run a platform that lets people trade them, lend them, or earn interest on them? You’re in a legal gray zone. The FCA hasn’t given clear permission. And without it, firms can’t legally operate.

The Two-Phase Plan That Never Fully Launched

The UK’s plan had two phases. Phase One: regulate stablecoins. Phase Two: bring everything else under the Financial Services and Markets Act 2000 the primary law governing financial services in the UK, now being expanded to cover cryptoassets.

Phase One is mostly done. The Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025 legislation passed in April 2025 that formally extends FCA oversight to crypto activities gave the FCA the legal power to enforce rules on stablecoin issuers and payment processors. Firms had to submit applications by June 2025. Some got approved. Others were rejected. A few just disappeared.

Phase Two? It’s still in consultation. The FCA published draft rules in May 2025 on how to regulate crypto lending, staking, and decentralized exchanges. But there’s been no final decision. No deadline. No enforcement timeline. That’s because the government changed. The Conservative Party lost power. The Labour government took over. And crypto is no longer a priority.

Why the Labour Government Pulled Back

Under Rishi Sunak, crypto was part of a broader tech competitiveness agenda. He hosted crypto summits. He invited blockchain founders to Number 10. He wanted the City of London to outpace Singapore and Dubai.

Now? Silence.

Labour doesn’t hate crypto. But they don’t see it as a growth engine. Their focus is on housing, healthcare, and public services. Crypto regulation is seen as bureaucratic, not transformative. Industry insiders say the government’s energy has shifted. “The UK doesn’t feel like it’s prioritizing it as much as it was a few years ago,” said Arvin Abraham, a partner at Goodwin’s private equity group.

That’s made life harder for startups. Investors are waiting. Talent is leaving. Some crypto firms that registered in the UK in 2023 are now relocating to Switzerland, Portugal, or even the UAE. Why? Because those places offer faster licensing, clearer rules, and tax incentives. The UK offers compliance headaches.

Consumer Protection - Good Intentions, Real Consequences

The FCA’s main goal is to stop fraud. And they’re not wrong. In 2024, UK consumers lost over £320 million to crypto scams. That’s more than any other country in Europe.

So the FCA cracked down. They banned crypto ads on TV and social media unless the firm was fully registered. They forced exchanges to warn users: “Crypto is high risk. You could lose all your money.” They even made it illegal to promote crypto to people under 18.

These rules protect people. But they also scare them. A 2025 survey found that 61% of UK crypto owners now feel the government doesn’t trust them. Many stopped talking about their holdings. Some closed their wallets.

And here’s the irony: the same rules meant to protect consumers also make it harder for legitimate businesses to grow. A small DeFi platform can’t afford the legal team needed to navigate FCA paperwork. So they don’t try. They just operate offshore - and UK users lose access to innovation.

International Rivalry: Who’s Winning?

The UK isn’t alone. Every major economy is trying to become the crypto capital.

Switzerland has a clear licensing system. Singapore offers tax breaks for crypto firms. The EU has MiCA - a unified rulebook that applies across 27 countries. Even the US, despite its messy state-by-state rules, has more private sector momentum.

The UK has one advantage: its financial infrastructure. The City of London has the talent, the banks, the legal system. But it’s moving too slowly. While Dubai launched a $1 billion crypto fund in 2024, the UK hasn’t announced a single public investment in the sector.

And then there’s the Digital Pound. The Bank of England is exploring it. But it’s not crypto. It’s a government-controlled digital currency - the opposite of decentralization. Most crypto advocates see it as a threat, not a solution.

The Real Barrier: Legal Uncertainty

The biggest problem isn’t regulation. It’s ambiguity.

Can you lend Bitcoin in the UK? Maybe - if you’re registered as a deposit-taker. But no one knows what that means. Can you run a DAO? Can you issue a token that gives voting rights? Can you earn interest on Ethereum? The FCA won’t say yes. But they won’t say no.

This uncertainty is killing innovation. Startups need clarity to raise money. Investors need rules to deploy capital. Developers need to know if their code will be legal next year.

Right now, the UK is asking businesses to build in the dark.

What Happens Next?

The FCA says it will finalize Phase Two rules by early 2026. But without political backing, that timeline is shaky. If Labour doesn’t push forward, the UK could become a regulatory graveyard - full of registered firms that never launch anything.

Or, if the government decides to act, the UK could still lead. It has the legal framework. It has the talent. It has the market. But it needs courage - not caution.

For now, the UK’s crypto hub is more of a promise than a place. The rules are written. The people are ready. But the leadership? It’s gone quiet.

Final Thoughts: Regulation Without Vision

The UK has the tools to be a crypto leader. It has the legal framework. It has the financial muscle. It has millions of people already using crypto. But it lacks the vision to push forward.

Regulation isn’t the enemy. Over-caution is.

If the government wants to keep talent, attract investment, and protect consumers - it needs to decide: is crypto a threat to be controlled? Or an opportunity to be unlocked?

Right now, it’s doing neither. It’s just waiting.