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The Financial Services and Markets Act 2000 (Collective Investment Schemes) is a piece of legislation designed to protect investors and outline what constitutes fair treatment, thereby maintaining market confidence in investment vehicles, while also identifying what may erode this confidence. It’s important to note that this is a broad, far-reaching piece of legislation.
As such, we will be focusing our Moneybrain magnifying glass only on the crypto-relevant parts. In particular, we will highlight the amendment to this legislation regarding crypto staking, which will come into effect on January 31st, 2025. This change will include qualifying crypto-asset staking and enable investors to stake their crypto assets. The amendment reads as follows:
2. In the Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001(1), after paragraph 21(2) of the Schedule (arrangements not amounting to a collective investment scheme), insert—
“Qualifying crypto asset staking
22.—(1) Arrangements for qualifying cryptoasset staking do not amount to a collective investment scheme.
(2) In this paragraph— “blockchain validation” means the validation of transactions on—
- a blockchain; or
- a network that uses distributed ledger technology or other similar technology;
“qualifying cryptoasset” has the meaning given by paragraph 26F (qualifying cryptoasset) of Part 2 (controlled investments) of Schedule 1 to the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005(3); “qualifying cryptoasset staking” means the use of a qualifying cryptoasset in blockchain validation.”
This change in legislation marks a significant shift in the U.K.’s approach to the crypto market, demonstrating that the U.K. is loosening its regulatory stance on crypto to foster a more blockchain-enabled environment with expanded crypto offerings.
But What Exactly Is Cryptoasset Staking?
Cryptoasset staking involves contributing to the operations of a blockchain or private ecosystem in exchange for rewards. It also offers potential benefits, such as supporting network growth and improving operational efficiency. To keep things simple, we’ve summarised the key points below:
Staking Overview:
- Locking Cryptoassets: When you stake your crypto assets, you are locking them within the network or ecosystem for a fixed period. During this time, you cannot exchange, transfer, or withdraw your staked assets, making them temporarily illiquid. This process resembles yield-based investments, but it requires a longer commitment.
- Investing in Network Longevity: Staking aligns you with the success of the ecosystem. By contributing your crypto assets, you help support the stability and operations of the network, benefiting from its overall growth and efficiency.
- Earning Rewards: Staking often provides rewards in the form of additional cryptocurrency, which can act as a source of passive income. However, these rewards are only accessible once the staking period ends.
- Increased Stability: Staking encourages a long-term investment mindset, which helps contribute to the stability of the staked currency. This can reduce market volatility and promote resilience within the ecosystem.
By staking your crypto assets, you’re not only earning potential rewards but also playing a crucial role in strengthening the blockchain or ecosystem you support, although staking is not without its risks as the platforms that have predominantly offered staking in the past have been decentralised and unregulated, offering attractive high returns but with the risk of going bust and no investor protections. In the coming year with this new amendment taking effect, we would expect to see more regulated centralised exchanges and firms offering the ability to stake crypto assets, this will be covered in upcoming CARF regulations.