UK Treasury Clarifies Crypto Staking is Not a Collective Investment Scheme

The UK Treasury has issued a new order that clarifies the regulatory status of crypto staking, confirming that it does not fall under the definition of a “collective investment scheme” (CIS). This clarification is significant as collective investment schemes are subject to stringent regulations.

The amendment, announced on January 8, addresses Section 237 of The Financial Services and Markets Act 2000, which deals with group investment arrangements. It specifies that "arrangements for qualifying cryptoasset staking do not amount to a collective investment scheme." In the context of this amendment, "qualifying cryptoasset staking" refers to activities such as validating transactions on proof-of-stake blockchains like Ethereum and Solana, as well as other distributed ledger technology (DLT) networks.

This change is expected to take effect on January 31, 2025.

What Does This Mean for Crypto Staking?

The updated law brings much-needed clarity to the regulatory treatment of crypto staking, a process where users lock up their crypto assets to participate in the validation of transactions on a blockchain. In return for their participation, users are incentivized with additional tokens. While staking is a core component of blockchain technologies like Ethereum and Solana, the legal status of these activities had been uncertain until now.

The distinction is crucial because collective investment schemes are heavily regulated by the Financial Conduct Authority (FCA) in the UK. These schemes, which include exchange-traded funds (ETFs) and investment funds, require registration, authorization, and strict compliance with ongoing regulatory requirements for managers. Staking, by contrast, involves no collective pooling of funds with the intention of generating profits for participants in the same manner as a traditional investment fund.

Support from the Crypto Industry

Industry leaders have welcomed the move. Bill Hughes, global director of regulatory matters at ConsenSys, praised the update in a post on social media, saying, “This is a good development because the management and promotion of CIS are heavily regulated. The way a blockchain works is NOT an investment scheme. It’s cybersecurity.”

Crypto industry advocates had pushed for this clarification to prevent the overly burdensome regulation typically associated with collective investment schemes from being applied to staking services. Economic Secretary to the Treasury, Tulip Siddiq, had previously addressed this concern at a conference in London in November 2024, where she assured that the government would remove legal uncertainty surrounding staking services. She noted, “For me, it doesn’t make sense for staking services to have this treatment,” and confirmed that the Treasury would work to ensure that staking activities were not unnecessarily burdened by CIS regulations.

What’s Next for Crypto Regulation in the UK?

This move is part of the UK Treasury’s broader efforts to establish a clear regulatory framework for cryptocurrencies. In November 2024, the government announced that a draft framework for crypto regulation would be ready by early 2025. This framework is expected to cover a wide range of topics, including staking services, stablecoins, and broader crypto industry regulations.

The clarification on crypto staking is a step toward achieving regulatory certainty in the crypto sector, which has been a key concern for both industry participants and regulators. As the crypto landscape continues to evolve, further regulatory updates are expected to shape how digital assets and blockchain-based activities are treated under UK law.

Conclusion

The UK Treasury’s decision to exempt crypto staking from the collective investment scheme definition is a significant development for the cryptocurrency sector. This decision provides much-needed clarity and ensures that staking services are not subject to the heavy regulatory burden typically associated with collective investment schemes. As the UK continues to develop its regulatory framework for crypto, this change marks an important step towards fostering a more supportive environment for innovation in the blockchain space.