The UK Treasury recently made a significant amendment to the Financial Services and Markets Act 2000 (FSMA) that will have a positive impact on the crypto industry. Effective January 31, the amendment excludes crypto staking from being classified as a collective investment scheme. This change specifically affects Ethereum (ETH) and Solana (SOL) staking, recognizing it solely as a process for blockchain validation.
Previously, there was ambiguity surrounding the regulatory classification of staking, which posed a risk of categorizing it alongside traditional pooled investment vehicles subject to stricter FSMA regulations. The amendment now clarifies that staking involves participants locking crypto to validate blockchain transactions and secure the network, distinguishing it from collective investment schemes.
Bill Hughes, a lawyer at Consensys, applauded the move as a significant step for the industry, highlighting that the traditional heavy-handed approach of UK law towards regulating collective investment schemes could have hindered growth. He emphasized that the way a blockchain functions is more about cybersecurity than investment schemes.
With this regulatory clarity, businesses and individuals engaged in blockchain staking can now operate without the burden of compliance measures designed for collective investment schemes. The UK’s move aligns with its 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 plans to develop regulations to boost regional innovation, including guidelines for stablecoins and a new regulatory status for staking. The goal is to avoid hindering technological innovation and keep the UK competitive in the global crypto landscape.
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 specified criteria in existing UK legislation, recognizing these assets for regulatory purposes. Meanwhile, “blockchain validation” pertains to validating transactions on blockchain networks supported by staking mechanisms.
This amendment is particularly relevant to major blockchain networks like Ethereum and Solana, which heavily rely on staking for transaction validation. The change could potentially increase value accrual for companies holding these assets and encourage the offering of exchange-traded products leveraging staking in the UK.