Stablecoins for payments: UK government has consulted on draft SI exempting such services from scope of new crypto regime pending further payments reform proposals

Payments with UK-issued qualifying stablecoin

The government plans to consult soon on bringing payment services using stablecoins that have been issued in the UK by a firm authorised for the new regulated activity of issuing qualifying stablecoin into regulated payments as part of its forthcoming wider payments services reforms outlined on 21 April 2026. According to the February 2026 Payments Forward Plan and the more recently published tenth edition of the Financial Services Regulatory Initiatives Grid, the consultation will be published in Q2 this year – so we should see it before the end of June.

Pending this further regulatory clarification, in the draft Financial Services and Markets Act 2000 (Cryptoassets) (Amendment) Regulations 2026 (Amending SI) and related policy note the government proposes to:

• Carve out UK qualifying stablecoin (UKQS) from the new activities of dealing in qualifying cryptoassets as principal, dealing in qualifying cryptoassets as agent and arranging deals in qualifying cryptoassets under the Crypto Regulations – a move that’s likely to be welcomed by stablecoin payments firms.
  • Firms undertaking UKQS payments will, however, still need to obtain permissions for cryptoasset safeguarding under the crypto regime where they safeguard, or arrange for another to safeguard, cryptoassets (including UKQS) on behalf of another. The government will be consulting on a proposal that safeguarding undertaken in the course of providing payments services should sit within the payments rather than the crypto regime. It will work with the FCA to ensure a streamlined transition into the new payments regime for affected firms.
  • The government is also proposing to clarify that the temporary settlement exclusion from cryptoasset safeguarding in the Crypto Regulations, that was introduced for the purposes of settling trades, applies only where the activity is ancillary to dealing or arranging, and therefore does not apply to holding UKQS in the course of providing payments services.
• Leave lending and borrowing activities involving UKQS within scope of the cryptoassets dealing activities under the Crypto Regulations so that the FCA can create rules to address the associated consumer risks as appropriate.
  • The policy note explains that the government recognises that this decision could create frictions for the use of UKQS in collateral arrangements. It is therefore planning to address this in the final Amending SI and will ask for industry input on the best approach.
  • The government will also be seeking industry input on potential remaining frictions for certain types of cross-border stablecoin payments that could be caused by the fact that overseas-issued stablecoin remains inside the perimeter for cryptoasset dealing and arranging.
• Change the perimeter for the financial promotions regime under the Financial Promotions Order (FPO) so that transactions involving UKQS (and no other cryptoassets) will not be subject to the financial promotions regime, with the exception of lending and borrowing arrangements. The regulated activity of issuing a qualifying stablecoin has also been added to the FPO as a new activity.
• Bring the provisions in the crypto regime that carve out stablecoin backing assets from being either a collective investment scheme or alternative investment fund into force early – as currently drafted, 30 days after the Amending SI enters into force.
  • The idea is that this will help avoid barriers to stablecoin adoption for different use cases and associated services ahead of the crypto regime coming into full force in October 2027.
  • The policy note points out that firms undertaking services in UKQS only and not holding a FSMA permission may still be required to register under the FCA’s Money Laundering Regulations Gateway to ensure appropriate compliance with obligations related to the prevention of money laundering.

Other proposed amendments to crypto regime

Following stakeholder feedback and in the interests of ensuring a competitive UK crypto regime, the government is also taking this opportunity to address two further points in the Amending SI:

• Proprietary trading/market making: Ensuring that UK based firms can provide market making services in the UK without having to be authorised for dealing, thereby creating a level playing field with overseas firms.
• Central securities depositories (CSDs): Extending the exemption from safeguarding permissions requirements for CSDs and the nominee companies they use for safeguarding and administering assets under the Regulated Activities Order to include nominee companies for specified investment cryptoasset safeguarding. The aim is to avoid barriers to UK innovation with tokenised securities.

What's next?

The draft SI and policy proposals were open for comments until 22 May 2026. The final SI is now awaited.

A government consultation on wider payment services reforms is due in the next few weeks. Publication of the draft SI and policy proposals therefore mark the beginning of a period of further regulatory transition for the payments sector as the UK looks to consolidate the competitive advantages presented by growing use cases for stablecoin and other emerging technologies such as agentic payments.

HMT has also published the response to its September 2025 consultation on a new 'streamlined' regulatory framework for payment systems, which we explore further in this Our Thinking article. The relevant legislative provisions have been included in the Financial Services and Markets Bill 2026-27, which was introduced to Parliament on 19 May.

For more on the government's planned further work to position the UK as the leading destination for fintechs to start, scale and succeed, take a look at this Our Thinking article.

If you would like to discuss how the government's proposed amendments could affect your business, please get in touch with any of the listed people or your usual Hogan Lovells contact.

Authored by Virginia Montgomery.