How the UK is Tackling Crypto's Legal Challenges

Dr Akrum El Menshawy, Lecturer at NLS https://www.ntu.ac.uk/staff-profiles/law/akrum-el-menshawy, Professor Rebecca Parry, Professor at NLS https://www.ntu.ac.uk/staff-profiles/law/rebecca-parry, and Dr Hakan Sahin, Senior Lecturer at NLS https://www.ntu.ac.uk/staff-profiles/law/hakan-sahin

When Bitcoin emerged, it promised a new concept of financial transactions without banks; peer-to-peer payments verified by cryptography rather than traditional intermediaries. That vision has partly materialised, but with a twist: most people now buy crypto through new intermediaries called exchanges, creating fresh regulatory challenges around fraud, money laundering and market abuse.

Two fundamental legal questions have also emerged in this sector. First, what actually are cryptoassets in law? Unlike shares or bank deposits, they are not rights against any person or institution. Second, now that some cryptoassets (particularly stablecoins) have entered mainstream finance, how should they be regulated and how should intermediaries be regulated? Recent UK developments tackle both issues.

The first question has been resolved by the Property (Digital Assets) Act 2025. This Act has clarified that digital assets can be regarded in law as property. Whilst this is an outcome that we might have expected, given the popularity of cryptoassets, it was not a foregone conclusion as a matter of property law and has been the subject of fierce academic debate, with Professor Robert Stevens being a key critic. The problem was that digital assets do not fit into existing characterisations of law. Prior to the 2025 Act the only legal basis for a finding of property was as either as a “thing in action” - an intangible right, such as a claim to a debt, that can be pursued in law - or a “thing in possession” - a tangible asset. Unlike intellectual property rights, which are intangibles with established property status and are enforceable against identifiable infringers, cryptoassets exist on a distributed ledger without being rights against any person or entity.

The Act clarifies the position in England, Wales and Northern Ireland, following a recommendation made by the Law Commission following an excellent research project, and reflects the pragmatic approach that was developing in case law. In one main section, s 1, it clarified that

A thing (including a thing that is digital or electronic in nature) is not prevented from being the object of personal property rights merely because it is neither—

(a) a thing in possession, nor

(b) a thing in action.

From these words we can see that an expansive approach was taken to digital assets as property, that was not focused on any one type of digital asset, although the immediate need for the Act had been prompted by debates over cryptoassets. This clarification was important as digital assets have entered the financial mainstream and can be very valuable and significant things (assuming that private keys can be accessed), for example, for claims in insolvencies, proprietary claims for victims of crime and entitlements in succession, upon death etc. Consistent case law across the common law world had found cryptoassets to be property and the influential UK Jurisdiction Task Force had also done so. The 2025 Act states the matter clearly.

One legislative gap left by the Act, however, is that international law aspects were not addressed and cryptoassets are inherently international in nature. The Act does not create any rules as to which country's law governs proprietary questions, nor how to identify a lex situs, the law of the place where property is located, for an asset that may be held/controlled across borders. Those issues have been the subject of a further Law Commission consultation and in the interim, may be resolved in case law. In many cases there will be a simple answer that will turn on relevant contracts between the parties but in cases where there is debate, we can anticipate that the judiciary will continue to take a flexible and pragmatic approach to crypto assets.

The second question, about the regulation of cryptoassets and intermediaries, is being addressed a series of consultation documents issued by the Financial Conduct Authority (FCA). In these documents the FCA has taken an approach to digital assets which has focused on intermediaries such as exchanges, rather than trying to regulate every aspect of crypto assets.

There is indeed no inherent contradiction in regulating platforms that give access to digital assets. Admittedly these assets were developed as an alternative to financing through traditional intermediaries, such as banks. They evolved so that people could transact peer to peer. Doing so remains entirely possible. In practice, however, not everyone who wanted to buy digital assets would have the technical knowledge to be able to transact peer to peer and intermediaries developed to facilitate transactions. The result is that digital assets came into the financial mainstream and one set of highly regulated intermediaries - the banks - has been replaced with another set of (initially) unregulated intermediaries - the exchanges and custodians. Investor protection becomes necessary where there is mainstream adoption and institutional investment.

Since there would be potential for market abuse, money laundering, financial crimes and insolvency risks (and no safety net like the depositor protection that is offered in relation to banks), the FCA has focused on regulating these new intermediaries, including certain decentralised (DeFi) exchanges, where there are identifiable owners, and the present consultations will strengthen these approaches: consulting on a prudential scheme for crypto intermediaries (CP25/42) and enhancing regulation of cryptoasset activities (CP25/40) and public offers of cryptoassets (CP25/41). These proposals operate at the interface between crypto and the financial mainstream, acting as safeguards against mismanagement and strengthening protections for those buying cryptoassets.

Other FCA activity has focused on asset-backed crypto, known as stablecoins, such as Tether, which are commonly used in blockchain payments and settlements, and custodian arrangements. Custodians represent another form of important new intermediary. There can be systemic risks and, in view of this, a previous FCA consultation considered stablecoin and custodian regulation.

The thorough consultation process mitigates some of the risks of regulation potentially causing further issues for the crypto industry and the Courts. Whilst speed can be important for the race to become a Crypto Hub, potentially rushing through regulation without proper consultation could have added further risk and prevented clarity and trust, which would be more detrimental. 

Of course, individuals can still invest directly in crypto on an unregulated, peer-to-peer basis directly via blockchains. Purchasers must still appreciate the risks as digital assets such as Bitcoin have no underlying value (in contrast to stablecoins), with values dependent entirely on investor sentiment. They are therefore of volatile value and are risky investments. The FCA's traditional stance has been to educate consumers through its InvestSmart site, as well as to manage expectations and warn that anyone investing in crypto should be prepared to lose all of their money. It is vitally important that any form of regulatory intervention is not necessarily viewed as restrictive or damaging to the market, and the further clarity of cryptoassets being legally classified as property under the Act can be highly beneficial for the stability of the crypto market in the UK moving forward. 

There remain many matters which will be the subject of legal debate and litigation. These can include in insolvency proceedings (e.g. voidable transactions litigation, asset tracing), cybercrime, disputes over custody/control and private key access, jurisdictional disputes, contract disputes between exchanges and customers, regulatory enforcement actions and estate administration disputes.

In these recent developments the UK has made significant progress in establishing a legal and regulatory framework for cryptoassets that balances innovation with protection. The 2025 Act provides conceptual clarity, while the FCA's targeted approach to intermediaries addresses practical risks without attempting to regulate the unregulatable. These developments position the UK competitively in the evolving crypto landscape.

Sources:

Financial Conduct Authority, ‘CP25/40: Regulating cryptoasset activities’ (16 December 2025)

Financial Conduct Authority, ‘CP25/41: Regulating cryptoassets: Admissions & disclosures and market abuse regime for cryptoassets’, (16 December 2025)

Financial Conduct Authority, ‘CP25/42: A prudential regime for cryptoasset firms’, (16 December 2025)

UK Law Commission, Digital Assets: Final Report, HC 1486 Law Com 412 (27 June 2023) ix

Rebecca Parry and Paula Moffatt, Cryptoassets in Insolvencies: Selected Difficulties and Necessary Guidelines, paper presented at the Insolvency Service’s Forward Thinking Conference, 8 April 2025

Robert Stevens, ‘Crypto is not Property’ (2023) 139 LQR 628