UK – New statutory instrument on cryptoasset staking

Background

The regulatory position of staking services across the globe is generally unclear—the EU’s Markets in Crypto-asset Regulation ("MiCA”) does not explicitly address (or prohibit) staking, although requirements relating to cryptoasset custody may be applicable to certain staking activities to the extent the activities involve the custody of client assets. In the US, the Securities and Exchange Commission (“SEC”) has in the past taken enforcement action under securities legislation against cryptoasset trading platforms which offer staking services. The Bahamas is one of the few jurisdictions which has specifically addressed staking in legislation, by including staking services as a regulated activity under the Digital Assets and Registered Exchanges Act 2024 and establishing requirements on staking service providers in relation to transparency and customer disclosures.

In the UK, although cryptoasset staking is not expressly regulated under financial services legislation, under existing rules, certain staking arrangements (depending on the exact operating model) have the potential to meet the definition of a “collective investment scheme” (“CIS”) and therefore fall within the regulatory perimeter applicable to such investment schemes. Historically, this had led to concerns in the industry regarding firms’ ability to offer staking services without being in breach of existing regulatory requirements that were not developed with such new business models in mind.

Following the keynote address at the Tokenisation Summit 2024 on 21 November 2024 by Tulip Siddiq MP (Economic Secretary to the Treasury), which confirmed the government’s intention to introduce legislation clarifying the legal treatment of cryptoasset staking arrangements (see also our article here), HM Treasury has on 9 January 2025 laid The Financial Services and Markets Act 2000 (Collective Investment Schemes) (Amendment) Order 2025 (the “Order”).

The Order

The key function of the Order is to insert a new paragraph 22 into the Schedule to the Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001, which states that “arrangements for qualifying cryptoasset staking” are excluded from the meaning of collective investment schemes (“CIS”) as defined under FSMA 2000.

Qualifying cryptoasset” has the same meaning given to it under the financial promotions rules (i.e. by reference to the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended by the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023)—see our previous article outlining the financial promotions regime here. Broadly speaking, the term covers cryptoassets that are transferable and fungible.

While the Order is short in length, the new provision clarifies that staking services which may otherwise amount to CIS would fall out of scope of the regulatory requirements applicable to CIS, to the extent such arrangements are for “qualifying cryptoasset staking”—in other words, the arrangement is for the use of qualifying cryptoassets in the validation of a blockchain or other distributed ledger technology (DLT) based network. This would include, for example, arrangements where the service provider ‘pools’ cryptoassets from multiple clients in order to meet the minimum staking requirements for the blockchain protocol in question.

Such clarification is particularly welcome as awareness and adoption of cryptoasset staking is on the rise (as reflected in the latest FCA consumer research). The Explanatory Memorandumto the Order estimates that at least 30 firms would benefit from the clarity provided by the legislation.  

Notably, however, the Order does not set out any further rules or requirements applicable to those providing staking services. According to the FCA’s indicative roadmap, the FCA expects to publish a discussion paper seeking feedback on the regulatory regime for staking (among other things, such as cryptoasset trading platforms and lending) in Q1/Q2 2025.