FSMA 2023 (Financial Services and Markets Act 2023 — UK)

The Financial Services and Markets Act 2023 (FSMA 2023) received Royal Assent on June 29, 2023, and is the UK’s most significant financial regulatory legislation since Brexit. The Act overhauled numerous aspects of the UK’s retained EU financial services law, created new mechanisms for the UK to develop its own regulatory approach independent of EU frameworks, and — most significantly for digital finance — established the legal basis for regulating cryptoassets as a new category of regulated financial activity.

Post-Brexit Regulatory Architecture

FSMA 2023 was necessitated by Brexit. The UK’s financial regulatory framework had been built substantially around EU legislation — MiFID II, EMIR, AIFMD, and dozens of other EU legal instruments — that applied in the UK while it was an EU member state. Following Brexit, these instruments were incorporated into UK law as retained EU law, but without the EU legislative machinery to update them.

FSMA 2023 created new mechanisms for the UK to amend, repeal, and replace retained EU financial services law. It gave HM Treasury powers to make regulations adapting retained EU law to UK conditions and created a new framework for the FCA and the Prudential Regulation Authority (PRA) to develop distinctively UK regulatory approaches.

The Act represented both an opportunity and a risk: the opportunity to design regulation better suited to UK market conditions and the government’s ambition to make the UK a leading global crypto hub; the risk of divergence from EU standards that could create barriers for UK-EU financial services trade.

Cryptoassets as Regulated Activity

FSMA 2023’s most significant crypto provision is its extension of the regulated activity regime to cryptoasset activities. Under the Financial Services and Markets Act 2000 (FSMA 2000), only activities specified in the Regulated Activities Order (RAO) require FCA authorization. FSMA 2023 amended FSMA 2000 to enable cryptoasset activity to be added to the RAO, giving HM Treasury the power to bring cryptoasset businesses within the FCA’s authorization regime.

HM Treasury consulted on the specific regulated activities through 2024 and 2025, ultimately specifying activities including: operating a cryptoasset trading platform; providing crypto custody; dealing in cryptoassets as principal or agent; arranging deals in cryptoassets; advising on cryptoassets; and operating a cryptoasset staking service. The Cryptoassets Regulations, published in December 2025, specified these activities and their requirements in detail.

FCA Authorization and the October 2027 Date

Firms wishing to carry on regulated cryptoasset activities in the UK must apply for FCA authorization. The FCA has published extensive consultation papers on its requirements for authorized crypto firms, covering capital requirements, governance, wind-down planning, market abuse, disclosures, and client asset protection.

The full cryptoassets regime is scheduled to go live in October 2027. This date reflects the FCA’s deliberate pacing: building a new authorization regime requires developing detailed requirements, supervising a potentially large number of applicants through the authorization process, and ensuring that the regime is operationally ready before hard enforcement begins.

In the interim, firms registered under the Money Laundering Regulations 2017 — the AML registration regime that the FCA has administered for crypto businesses since 2020 — continue to operate under that framework. The AML registration is a lower bar than full FSMA authorization; the transition to the full regime represents a significant step-up in regulatory requirements.

Fiat-Backed Stablecoins

FSMA 2023 brought fiat-backed stablecoins into the UK regulatory perimeter as a form of electronic money. This treatment — analogous to but not identical with MiCA’s treatment of e-money tokens — means that issuers of stablecoins pegged to sterling or other fiat currencies must hold reserves in qualifying assets and meet FCA authorization requirements.

The UK’s approach to stablecoin regulation has been developed to support sterling stablecoins as a potential means of payment, consistent with the Bank of England’s and HM Treasury’s interest in maintaining sterling’s relevance in digital payments. The FCA’s stablecoin authorization requirements include reserve composition rules, redemption rights for holders, and operational resilience requirements.

Divergence from MiCA

The UK’s FSMA 2023 framework is explicitly designed to diverge from MiCA in several respects. UK officials have consistently indicated that the UK does not intend to simply copy MiCA but to develop a framework tailored to UK market conditions and the government’s ambition to position the UK as a global crypto hub.

Key areas of intended divergence include: the UK’s activity-based approach (which avoids MiCA’s instrument-based categorization), the treatment of decentralized protocols, the capital requirements for crypto custodians, and the approach to crypto derivatives. Whether this divergence creates competitive advantage for the UK or creates fragmentation costs for businesses operating in both UK and EU markets remains contested.