The UK’s deliberate approach to digital assets was meant to build trust. Instead, it is leaving the country stranded between ambition and inertia.
Setting the pace
The cautious approach to crypto regulation taken so far may have protected a reputation for prudence, but it is fast becoming a liability. Unless the UK accepts more risk, it will lose the initiative it once owned.
The previous Conservative government declared its ambition to make London a global hub for crypto assets in 2023. The current Labour administration has kept most of the framework but shifted the emphasis from promotion to prudence. The message is clear: credibility comes before competition.
The Financial Conduct Authority, the Treasury, and the Bank of England have each carved out their roles in a careful, interlocking structure. The goal remains to align digital assets with existing law rather than rewrite the rulebook. It is a tidy policy, but painfully slow in its execution, and not one which will win over the entrepreneurs and companies gathering at October's London Blockchain Conference, or the capital's Digital Assets Week earlier this month.
To be fair, that caution was recently underscored when British police confirmed that £1.4bn in bitcoin seized in connection with a vast China-based investment scam is being processed through UK courts. The case, among the largest crypto seizures in history, is a reminder that risk permeates borders whether a country welcomes it or not.
Building the framework
In July, the Treasury confirmed that regulation would focus on “activities, not assets,” extending current financial rules to exchanges, custodians and issuers. That principle, now embedded in draft legislation, gives the UK a flexible base but leaves open questions of timing and impact.
Lucy Rigby, Economic Secretary to the Treasury with responsibility for fintech, crypto assets, and Central Bank Digital Currency, described the approach as “wholesale first,” saying that digitization would “make wholesale markets work better by replacing outdated processes and realizing the benefits of distributed ledger technology.”
While the ruling Labour party has yet to outline a distinct digital assets policy, Treasury officials have signaled continuity on the wholesale-first model and closer alignment with international standards. It is an engineer’s blueprint rather than a political statement. The UK wants its digital markets to function safely before they scale.
Wholesale first
The emphasis on institutional adoption is deliberate. Policymakers see tokenized gilts, regulated stablecoins and onchain settlement as low-risk entry points that demonstrate control. But the absence of retail access has slowed visible progress.
It also betrays a misplaced belief that credibility alone will draw innovation. In practice, firms are choosing speed over safety and moving to jurisdictions where experimentation is welcomed, not managed. Consider the exchanges: Coinbase is headquartered in the United States, Binance operates from Dubai, Kraken remains US-based, and OKX runs much of its business from Singapore.
More than 110 crypto firms are registered with the FCA, yet the UK still accounts for less than 3 per cent of global trading volume. London’s share of tokenized asset issuance remains negligible compared with the European Union and the Middle East Gulf.
The global race
Across the Channel, the EU’s MiCA regime is already in force, offering passporting rights to compliant firms. The US is testing its boundaries through enforcement and state-level rules. Singapore and the UAE are pulling capital east with faster approvals and more precise guidance.
That leaves London caught between rule-maker and rule-taker. Its institutional credibility remains an advantage, but credibility alone cannot compete with markets that are already transacting onchain.
The hare and the tortoise
Former Chancellor George Osborne recently described the UK as “well-intentioned but slow-moving,” warning that “finance does not wait for regulators to make up their minds.” Governor Andrew Bailey of the central bank countered that “stability must come before innovation.”
Both are right, but only one view builds markets. As tokenized finance scales elsewhere, London’s prudence risks looking like paralysis. The world’s largest asset managers and infrastructure firms are already building systems that will bypass it if the UK remains in consultation mode.
Defining success
Over the next 18 months, three milestones will decide whether the UK can catch up:
- Passage of secondary legislation under the Financial Services and Markets Act.
- FCA authorization of the first sterling-backed stablecoin.
- Launch of a tokenized gilt pilot under Bank of England oversight.
If those projects are delivered by 2026, the UK’s deliberate model may yet prove its worth. If not, it will confirm that London chose process over progress.
Politics and the populists
The next phase will also be political. Nigel Farage, leader of the Reform UK party, has cast himself as the country's 'crypto champion,' calling for a £5bn Bitcoin reserve, slashing capital gains tax on digital assets from 24 per cent to 10 per cent, and blocking the Bank of England's plans for a central bank digital currency, which he called an 'authoritarian nightmare.'
The proposals have won attention on social media and among retail traders, but Reform UK holds just five of Parliament's 650 seats. The party's influence in shaping policy remains limited, yet its populist tone has struck a chord with voters frustrated by slow growth and bureaucratic caution.
The frustration is real, but the response must be credible. Britain's digital assets future will not be secured through slogans or soundbites. The UK needs leaders who understand both finance and technology and who can balance innovation with accountability. Labour now has the opportunity to define that space, to show that serious stewardship, not populist showmanship, will determine whether London regains its place as a global centre for digital finance.
