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The UK Treasury has amended the Financial Services and Markets Act (FSMA), with the revision taking effect on January 31. This amendment excludes cryptocurrency staking from being classified as a collective investment scheme (CIS). As a result, staking cryptocurrencies such as Ethereum (ETH) and Solana (SOL) will now be considered merely a blockchain validation process rather than being subject to the regulatory requirements of a CIS.Previously, due to vague regulatory definitions, staking faced the risk of being categorized as a traditional CIS, which is subject to stricter FSMA regulations. The amendment provides clarity and removes this regulatory uncertainty for staking activities.
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FinTax Commentary:
FSMA is one of the most important financial regulatory frameworks in the UK. In early 2023, it began regulating cryptocurrency staking as a collective investment scheme (CIS). A CIS refers to a financial arrangement where multiple investors pool their funds, which are then managed by a professional team, with investors sharing profits and risks according to their respective shares. The structure of cryptocurrency staking bears similarities to this arrangement, leading the UK to previously classify it as a form of CIS. With this amendment, staking activities involving ETH and SOL will no longer need to comply with the strict regulatory requirements of CIS. Specifically, the amendment clarifies that staking is fundamentally different from a CIS because staking, as a blockchain validation process, involves participants locking up cryptocurrencies to verify transactions and secure the network. This process is fundamentally distinct from the nature of pooled funds and investment return mechanisms associated with traditional CIS.
Under FSMA regulations, CIS must meet stringent compliance requirements from establishment to operation. For example, management companies must maintain strong capital and financial stability, disclose investment details in a timely and transparent manner, and implement customer due diligence (CDD) processes. Therefore, by excluding cryptocurrency staking from CIS classification, this amendment will reduce compliance costs for the staking ecosystem, promoting the growth of cryptocurrency staking in the UK. However, this also reduces regulatory protection for UK cryptocurrency investors, increasing the risk of investment losses. From the perspective of balancing regulation and innovation, the UK regulators’ decision to make this concession primarily aims to foster innovation and development in the domestic crypto industry, which is beneficial for the long-term growth of the sector.
From a global perspective, cryptocurrency staking regulation has been a key focus for various governments. For example, in the European Union (EU), the MiCA framework exempts cryptocurrencies acquired for free from regulation, but projects requiring significant gas fees for interactions and staking activities remain subject to regulation. In Japan and Australia, staking activities are analyzed on a case-by-case basis, and if staking rewards are deemed to be financial product returns, then staking must comply with financial regulations. Singapore, on the other hand, has explicitly banned cryptocurrency lending and staking services for retail investors.
Overall, regulating cryptocurrency staking is an important issue that governments worldwide must address, but different countries have adopted varying regulatory approaches. The significance of this FSMA amendment lies not only in clarifying regulatory treatment for staking but also in demonstrating the UK’s strategic stance in the global cryptocurrency industry: maintaining regulatory flexibility, cautiously easing restrictions, and avoiding overly strict regulations that could hinder industry growth. This shift is expected to attract more blockchain projects and crypto businesses to the UK, helping the country gain a competitive edge in global crypto financial innovation.