The UK Treasury has introduced an amendment to the Financial Services and Markets Act 2000 (FSMA), effective January 31, to exclude crypto staking from being classified as a collective investment scheme.
Under this change, staking Ethereum (ETH) and Solana (SOL) will be recognized solely as a process for blockchain validation, no longer subject to the regulatory requirements applicable to collective investment schemes.
Previously, vague regulatory definitions created the risk of categorizing staking alongside traditional pooled investment vehicles, which are subject to stricter FSMA regulations.
The amendment clarifies that staking, which involves participants locking crypto to validate blockchain transactions and secure the network, is fundamentally different and warrants a tailored regulatory framework.
Bill Hughes, a lawyer at Consensys, welcomed the move as a significant step for the industry, emphasizing that UK law traditionally regulates collective investment schemes with a heavy-handed approach which would have stifled growth.
He added:
“The way a blockchain works is NOT an investment scheme. It’s cybersecurity.”
Consequently, businesses and individuals engaged in blockchain staking now have regulatory clarity, enabling them to operate without the burden of compliance measures designed for collective investment schemes.
Notably, the move aligns with the UK’s broader strategy of fostering innovation in the crypto sector while maintaining proportionate oversight to protect market participants.
In November last year, the UK government announced it would develop regulations to boost regional innovation. The plans included guidelines for stablecoins and a new regulatory status for staking. The goal is to avoid hindering technological innovation and leaving the UK behind in the crypto arms race.
Unique process
The amendment explicitly acknowledges the unique nature of staking, ensuring it is not subjected to inappropriate regulatory frameworks.
It defines a “qualifying crypto asset” as crypto that meets criteria specified in existing UK legislation, which recognizes these assets for regulatory purposes.
Meanwhile, “blockchain validation” addresses validating transactions on blockchain networks or similar distributed ledger technologies, often supported by staking mechanisms.
The amendment is particularly relevant to significant blockchain networks like Ethereum and Solana, which rely on staking for transaction validation. The change could boost the value accrual for companies holding these assets and foster the offering of exchange-traded products that leverage staking in the UK.
