Perspective by: Katherine Kirkpatrick Bos, general counsel at StarkWare
As regulatory attitudes toward cryptocurrency soften in the United States, the landscape is shifting in the UK, where authorities are preparing for more stringent regulations. The Financial Conduct Authority (FCA) in the UK is planning to introduce a new “gateway” authorization structure by 2026, aiming to encompass a wider array of cryptocurrency activities.
This development might seem irrelevant if you’re outside the UK, but as frameworks develop, regulators often look to other regions for guidance and inspiration. Cryptocurrency operates on a global scale, presenting both challenges and opportunities that require careful consideration of various regulatory environments simultaneously.
Wider Focus Than Just Anti-Money Laundering
Previously, the FCA’s primary focus concerning crypto was on Anti-Money Laundering (AML) compliance. This was a daunting challenge, as only about 14% of applicants seeking mandatory registration have successfully met their requirements since 2020.
The AML register offered a limited perspective; it wasn’t a full licensing or supervisory framework. Now, the FCA intends to broaden its scope. As stated by Matthew Long, the director of payments and digital assets at the FCA, the regulator plans to oversee a wider range of cryptocurrency operations by 2026, potentially covering stablecoin issuance, payment services, lending, exchanges, and more.
This marks a significant shift beyond just AML concerns. While AML and related anti-fraud measures are vital for any centralized crypto entity, a more advanced regulatory landscape may introduce both opportunities and challenges, depending on a company’s sophistication. Furthermore, the ongoing evolution of these regulations means the definition of what falls “in scope” may still change.
What does this signify for those developing projects? Anyone working on layer 2 (L2) solutions or other infrastructures that could interact with financial transactions—like bridging or cross-chain swaps—might find themselves in the regulators’ sights.
Global Impact
“That’s the UK; I’m in the US (or Singapore, or the Cayman Islands).” Just as the FCA examines international standards to shape its future approach, these regulatory frameworks tend to gain global traction. Consider how swiftly the conversation around data privacy evolved after the implementation of the EU’s General Data Protection Regulation (GDPR). The crypto industry operates similarly across borders.
Recent: UK trade associations urge the government to prioritize crypto as a ‘strategic initiative’
If the UK develops a robust framework, other regions might adopt similar guidelines. For businesses catering to customers outside their home country, it will not be feasible to overlook the UK’s regulations.
Take stablecoins, for instance: should the FCA impose stringent reserve disclosure requirements or nearly real-time audits, stablecoin issuers may find themselves needing to adhere to those standards universally. Consistency is generally preferred over fragmentation, which is how local UK regulations might inadvertently set the global standard.
No More Delaying for Developers
Development teams may glance at these developments and think: “Custodians and fiat on-ramps don’t concern me; I’m just deploying smart contracts.” This mindset is tempting but ultimately shortsighted. Many applications today facilitate lending pools, stablecoin liquidity, and staking services, which are exactly the kinds of activities regulators might define as “payment services” or “lending.”
If a protocol plays a crucial role in such operations, it may attract regulatory scrutiny. The FCA may not be reaching out to you immediately, but it is essential for builders to contemplate:
-
Control and Custody: If infrastructure manages users’ assets, even briefly, this could be deemed “custodial,” and the associated risk should be integrated into the overall product design.
-
Payment-Like Features: Depending on the overall architecture and level of centralization, a license may be necessary if a decentralized app mimics or facilitates payments, stable transfers, or lending.
-
Geographic Considerations: You might not possess a UK entity, but consider your user demographics. Does your platform target UK users? If so, opting out of regulations is not an option. Recall the FCA’s stringent marketing requirements for cryptocurrencies rolled out in 2023.
The Compliance Advantage
Regulation is often perceived negatively, but designing with current or anticipated regulations in mind can provide a competitive edge. Development teams that incorporate features like effective geofencing, Know Your Customer (KYC) integrations, or risk analytics could benefit if key markets demand specific levels of user protection.
Last-minute code adjustments can be burdensome. If you’re aware that regulations may shift, it’s wise to create a flexible architecture now.
Unity or Fragmentation?
The pressing question is whether we will witness a global consensus or a chaotic mixture of conflicting regulations.
The FCA has indicated a willingness to coordinate with other entities, such as the International Organization of Securities Commissions (IOSCO), and is monitoring the law that established uniform EU regulations for crypto, specifically the Markets in Crypto-Assets Regulation (MiCA). This suggests some interest in harmonization.
A potential “worst-case scenario” could be a full fragmentation, forcing developers to create region-specific versions of their applications or navigate confusing jurisdictional arbitrage. The ramifications would impact the crypto landscape broadly, particularly affecting smaller teams that lack the resources to develop multiple compliance modules.
It’s too early to predict which scenario is more probable. However, it’s evident that larger economies, including the EU, will continue to actively influence the development of a crypto legal framework tailored to their objectives. It’s likely they will share insights on what is effective and what is not.
Don’t Wait for 2026
Regardless of whether or not this upcoming gateway regime directly influences developers, it serves as a reminder that a landscape of unregulated innovation might soon give way to a more structured future characterized by increased oversight. If the approval rate for AML requirements, standing at 14%, was challenging, think how much more complex it will become as regulators expand into stablecoins, payment services, crypto lending, and beyond.
The silver lining is that the crypto industry has matured sufficiently to attract the attention of major traditional finance players. This growth is being leveraged to promote mainstream adoption, which is advantageous for developers looking to align with the industry and their objectives. If you aspire to be part of this future, don’t disregard the FCA’s initiative and the broader global regulatory evolution.
Stay informed about consultations, review draft proposals, and engage with qualified advisors. By the time 2026 arrives, you’ll be ahead of the curve rather than caught off guard.
The take-home message is clear: Build proactively, not reactively. Be ahead of the game, not behind it.
Perspective by: Katherine Kirkpatrick Bos, general counsel at StarkWare.
This article is intended solely for informational purposes and should not be considered as legal or investment guidance. The opinions expressed are solely those of the author and do not necessarily reflect or represent any organization.