Financial Services and Markets Act 2000 (Cryptoassets) (Miscellaneous Amendments) Regulations 2026

Baroness Kramer Excerpts

Tuesday 10th November 2026 Grand Committee

Together, these instruments demonstrate a practical approach to financial services innovation: clear rules, proportionate regulation and the flexibility to address barriers as markets develop. I hope that the Committee will support both instruments, and I look forward to the debate. I beg to move.

[Baroness Kramer (LD)]

My Lords, I fully accept that these two instruments contain sensible changes to reflect the introduction in the case of stablecoin in one and, in the other, to promote innovation within the crypto sphere. I will not do a line-by-line analysis—the Minister has laid out much of that—but I have some concerns. I will address each SI in turn to reflect those areas of concern.

Using the same order as the Minister, I start with the Financial Services and Markets Act 2000 (Cryptoassets) (Miscellaneous Amendments) Regulations 2026. This SI exempts qualifying stablecoin from regulation related to most dealing and arranging activity. I recognise that, as the Minister pointed out, this does not apply to general lending or borrowing, but it removes regulation from institutional collateral and repurchase arrangements. I recognise that the word “institutional” is intended to show that consumers would be protected even though there is a relaxation of lending and borrowing rules around repos and collateral. But, to me, the very fact that we are making this distinction again between institutional and consumer in the way we regulate—or in whether there is any regulation at all—raises again the whole issue of the regulatory perimeter.

The mini-bond scandal of just a few years ago is a powerful example of how bad actors manipulate around the edges of the regulatory perimeter established by the FCA to exploit people who think they are protected by FCA regulations when they are not. It is not difficult to confuse people, because the FCA’s approach means that some activities of a firm are regulated, while others—carried out by exactly the same firm but merely with a different customer base, as it were—are not. Many investors can be fooled and exploited.

I would just like to hear the Minister’s comments, because I am concerned. The crypto industry has plenty of honest players but it is also a magnet for the criminal, the corrupt and the inept. I would like a lot more assurance that this SI is not setting up the next mini-bond scandal, particularly around the area of institutional repos and collateral, which could easily be reformed in such a way that consumers could be persuaded that they were indeed qualified and sophisticated enough to purchase them, and then we will be back into another Woodford and that sequence of scandals.

I am also mindful that, when those mini-bond scandals first broke, the FCA basically said, “Nothing to do with me, guv—they’re outside the perimeter”. I would like to have some assurance that the FCA is now recognising that that perimeter cannot be such a hard line; it has to have some flexibility when there is obvious abuse.

The second of the statutory instruments deals essentially with the sandbox. I certainly do not object to it but again I have questions. I recognise that I was somewhat involved in the early days of the sandbox approach, and it has played a very important role in supporting innovation by using practical experience to get regulation right. It was first conceived of and introduced by UK financial regulators after the financial crisis to develop an effective regulatory framework for the fintechs, which is how I got involved in the process. The model, indeed, has been both recognised and copied around the world.

This SI, however, significantly extends the scope of the sandbox. The primary weakness of the sandbox system is that the regulator picks and chooses who gets to go in. When it picks out one of several small rival companies looking at approximately the same kind of innovation, it hugely advantages that entity that is chosen to go into the sandbox. Rivals suddenly find that they may struggle to get investment. Then, when the regulations appear, they are very much structured around that particular sandbox experience and so are often very tailored to the specific company that was in the sandbox and in effect they shut out relatively close rivals.

Companies have not dared to complain about a lot of this publicly because they are afraid that they will be treated as FCA troublemakers. How will the Government and the FCA address this issue now that the scope will be very much wider, drawing in many more pieces of legislation and a much bigger activity base?

Secondly, what kind of oversight does Parliament have as these innovations are introduced? This statutory instrument assumes permanent enactment by negative SIs, but the scope of the legislation essentially makes regulatory innovation subject only to regulatory decision-making. That is a direction which many of us in this House have raised before, and it seems that these changes in particular double down on that concern over both scrutiny and oversight.

As regards the breadth of the shift of what had previously been primary legislation now to the regulator, much of the motivation seems to be driven by the introduction of DIGIT, a digitally native short-dated government debt instrument that the Government intend to issue in 2027. Although DIGIT depends on known technology in the form of blockchain, the risks of unexpected technology failure are high, liquidity is an issue, and the system clearly lacks interoperability. How is Parliament supposed to raise these issues and challenges, given the way in which decision-making is essentially transferred to the regulator, which as far as I can tell has not provided satisfactory answers on any one of the issues that I just listed?

The SI also makes it clear that the regulator can go on to make changes which are far more sweeping than the examples it discusses in the Explanatory Memorandum that is attached. I would very much like the Government to address some of these concerns.

[Baroness Neville-Rolfe (Con)]

My Lords, I thank the Minister for introducing these two instruments. On these Benches, we welcome the steps that the Government are taking to support the development and regulation of digital assets in the United Kingdom. This is an area of considerable opportunity for our financial services sector, and it is so vital to UK growth. It is important that we establish a regulatory framework that supports innovation and competition while maintaining appropriate protections for consumers and the integrity of our markets.

I recognise the work being undertaken by Chris Woolard, the Government’s digital markets champion, to explore the potential role of stablecoins in our financial system. We also note the Government’s proposed digital gilt next year—DIGIT, as we heard it called by the Minister. The noble Baroness, Lady Kramer, was right to ask about how we can follow the path of these important changes, given that future changes would limit parliamentary accountability.

Although these are broadly welcome developments, I return to a concern that we raised repeatedly during the passage of the Financial Services and Markets Bill through your Lordship’s House: the absence of a clear co-ordinated strategy for the development and adoption of digital assets across our financial system. Indeed, it was precisely this concern that motivated our amendment to the Bill—now Clause 50—requiring the Government to develop a comprehensive digital asset strategy.

The development of digital assets is taking place at considerable pace around the world. Stablecoins, tokenised securities, digital currencies and distributed ledger technologies all have the potential to transform different aspects of our financial system. But these are not isolated developments; they are increasingly interconnected components of what could become a fundamentally different financial infrastructure. Therefore, what we need from the Government is not simply a collection of individual regulatory initiatives such as these, however welcome they might be, but rather a clear explanation of how these initiatives fit together, what the Government ultimately want to achieve and, above all, how they will ensure that the UK remains competitive as these technologies develop internationally. The proposed digital gilt is a useful illustration of this concern. Last week, the FT made the pointed observation that it was unclear what the exercise was intended to achieve beyond demonstrating that a digital gilt could be issued.

Turning specifically to the first instrument, we welcome the Government’s intentions to make UK-issued regulated stablecoins more practical to use for everyday payments, transfers and settlement. The instrument rightly introduces a number of exclusions from the regulated activities framework. I look forward to hearing the Minister’s response to the question raised by the noble Baroness, Lady Kramer, about flexibility in the event of abuse.

I have two areas of concern. First, if you are a potential stablecoin operator, you would be desperate to know exactly what the regulatory regime will be before you finally commit. The Treasury still holds the ring on how payment systems regulation will change, and its consultation has closed. When will final decisions on the regime be taken?

Secondly, the relatively narrow scope of today’s SI illustrates the wider point about the need for a whole-system approach. The principal payment-related exclusions are focused on a particular category of stablecoin: those issued by an appropriately authorised UK issuer. They do not extend generally to the wider range of crypto assets, and other activities, including certain exchanges and custody services, remain within the regulatory perimeter. Therefore, I would be grateful if the Minister could explain how these measures fit within the Government’s broader plans for the adoption of stablecoins and digital assets. Do the Government intend to set out a more comprehensive vision for their practical application across the economy?

Turning to the second instrument, we welcome the Government’s intention to provide greater flexibility for innovation through financial market infrastructure sandboxes. As I understand it, this instrument expands the range of legislation that may be modified within an FMI sandbox rather than itself making substantive changes to those enactments. That additional flexibility is welcome. It is right that firms should be able to test emerging technologies in an appropriate and controlled regulatory environment. I know that the Financial Services Regulation Committee is conducting an inquiry into sandboxes, and I look forward to its conclusions.

A fundamental question is what happens beyond the sandbox. It is one thing to demonstrate that a particular technology or process can work within a controlled environment. It is quite another to establish that it can operate successfully, at scale, within the wider financial market. There is a risk that we develop a succession of interesting pilots that demonstrate technical feasibility but never make the transition into commercially viable, widely adopted infrastructure.

--- Later in debate ---

[Lord Wilson of Sedgefield (Lab)]

I thank the noble Baronesses for those remarks and those numerous questions. I hope I can get to all of them and answer them at least adequately. Both noble Baronesses made a general point about digital asset policy. The Government have a substantial programme of work under the Wholesale Financial Markets Digital Strategy, including legislation, regulation and industry co-ordination. Specific initiatives such as the digital securities sandbox, the digital gilt instrument—DIGIT—the crypto asset regulatory framework and payments reform complement work being taken forward by the regulators and the sector. Chris Woolard, who has been the wholesale digital markets champion, is leading industry’s work through nine taskforce action groups and published his first report back in July. It is also fair to say that there has been cross-party consultation on this, and with the industry. I seem to remember that the noble Baroness, Lady Neville-Rolfe, raised taking stablecoins for payments, not just for general assets, when we discussed this back in February. We all just want to get this right, because it is so technical and it is so important for the economy as well.

To answer the point made by the noble Baroness, Lady Kramer, about FCA oversight and the mini-bond scandal, for example, the Government consider this approach to be the right and most appropriate one. UK-issued stablecoins will remain subject to high regulatory standards, and other requirements continue to apply. I will write to the noble Baroness on the issues that she raised on repo and collateral.

The digital securities sandbox allows both incumbents and new entrants to come into it. At the moment, 17 have gone through the first gateway, and three are actually in the sandbox now and in a position to—

[Baroness Kramer (LD)]

Can I just ask whether the Minister has any numbers for how many people have applied to go into the sandbox and have been turned down? Do we know, or do they get discouraged so early that there is no record?

[Lord Wilson of Sedgefield (Lab)]

I shall write to the noble Baroness on that. What I do know is that organisations are applying to go into it, so it is obviously being used and the industry sees it as very important. As I have said, we just need to get this right.

Further affirmative SIs may be needed as permanent changes issuing from these debates come forward in future. On the removal of UK-issued stablecoins from these activities creating a gap in consumer protection before the new payments regime is introduced, it is true that certain UK stablecoin transactions that would have fallen from the crypto regime will now remain unregulated until the payment reforms are implemented. However, the Government consider that this is the right approach and is more proportionate than requiring stablecoin payments to obtain crypto permissions now, only to seek different permissions under the future payments framework. This does not mean that stablecoins will be removed from regulation. Stablecoins issued in the UK will remain subject to high regulatory standards, and firms will remain subject to other applicable regulations.

Turning to some of the points made by noble Baroness, Lady Neville-Rolfe, on the issue of DIGIT, the Government are helping to demonstrate the technology through the digital gilt instrument. DIGIT will be a new digitally native UK government debt instrument issued on DLT within the DSS. The pilot is intended to test DLT across sovereign debt issuance and to catalyse development of UK digital market infrastructure, and the first transaction is expected in the first quarter of next year.

The noble Baroness, Lady Neville-Rolfe, also asked about the Government’s plans for stablecoin. It has the potential to have a significant role in retail and wholesale payments. We already see the benefits that stablecoin can provide in cross-border payments, reducing costs and improving efficiency. The Government also recognise that unlocking the full transformative potential for digital assets and blockchain technologies requires payments that interact with them directly, and stablecoin can play an important role in achieving this. It will therefore be important for the UK to harness those opportunities in promotion of the ongoing competitiveness of UK financial services. The crypto asset SI is explicitly intended to support a competitive UK regime by removing barriers while retaining appropriate regulation.

The noble Baroness, Lady Neville-Rolfe, asked about digital assets. The Government are a strong supporter of digital assets and see them as a key strategic priority. The Government are actively taking forward actions set out in the July 2025 wholesale financial markets digital strategy. We have appointed to Chris Woolard, and many other actions are being taken to support this work, such as the Bank of England and Financial Conduct Authority’s input on tokenisation, which closed in July. They intend to publish a further road map soon.

The Government have also made substantial progress on the digital security sandbox and the digital gilt instrument. I think it fair to say that the Government are taking this very seriously. We see the contradictions in this, especially with stablecoin and the efficiencies it can make. Obviously, the parliamentary regime and consultation is very important. The crypto asset SI avoids duplicative requirements for UK stablecoin payment activity ahead of wider payment reform, ensuring that requirements designed for crypto asset trading do not apply disproportionately to stablecoins used for payments, while regulation is retained where the risk is justified.

For the sandbox, these regulations make targeted additions to the legislation within scope of the FMI sandbox powers. This is needed because barriers to innovation cannot always be identified in advance. The changes will ultimately allow the digital securities sandbox to operate more effectively and, in particular, to provide the flexibility necessary to support the issuance of DIGIT through a platform participating in the sandbox.

In conclusion, these are proportionate measures that support innovation in financial services while maintaining appropriate protections. They ensure that regulation is targeted at the risks presented and that our frameworks can adapt as markets and technology develop. I commend both instruments to the Committee.