Cryptocurrencies will be regulated in a similar way to other financial products under legislation coming into force in 2027.
The Treasury sets rules that require crypto companies to meet a set of standards overseen by the Financial Conduct Authority (FCA).
Ministers have sought to overhaul the crypto market, which has risen in popularity as a way to invest money and make payments.
Cryptocurrencies are not subject to the same regulation as traditional financial products such as stocks, meaning that in many cases consumers do not enjoy the same level of protection.
The government said the new rules would make the crypto industry more transparent, boost consumer confidence and make it easier to detect suspicious activity, impose sanctions and hold companies accountable.
Rachel Reeves, the Chancellor, said: “Bringing cryptocurrencies into regulation is a crucial step in securing the UK’s position as a leading financial center in the digital age.
“By giving businesses clear rules of the road, we are providing the certainty they need to invest, innovate and create highly skilled jobs here in Britain, while providing strong protection for millions of consumers and keeping untrustworthy players out of the UK market.”
Crypto companies, including crypto exchanges and digital wallets, must register with the FCA if they provide services that fall within the scope of UK money laundering regulations.
The changes mooted by the Treasury will bring companies offering crypto services under the purview of the FCA and mean the services are regulated in the same way as other financial products, including by being subject to transparency standards.
Lucy Rigby, the Minister for the City of London, said: “We want Britain to be at the top of the list of crypto asset companies looking to grow and these new rules will give businesses the clarity and consistency they need to plan for the long term.”
The cryptocurrency market has suffered turbulence amid growing investor fears over a possible artificial intelligence bubble.
Banking industry data showed in October that the amount of money lost to investment fraud by UK consumers had risen by 55% in a year, with fake cryptocurrency said to be at the top of the list.
A Chinese woman living in Britain was convicted in September of billions of pounds worth of bitcoin fraud.
Zhimin Qian, also known as Yadi Zhang, orchestrated a fraud in China between 2014 and 2017 that left 128,000 people out of pocket. The 45-year-old kept the proceeds in bitcoin, but British authorities made a breakthrough in the case when they raided a mansion in Hampstead in 2018 and seized Qian devices containing 61,000 bitcoins, worth more than £5 billion at today’s prices.
The Metropolitan Police believe it is the largest cryptocurrency seizure in the world. Qian pleaded guilty at Southwark District Court on Monday to acquiring and possessing cryptocurrency that was criminal property.
Ministers are also drawing up plans to ban political donations using cryptocurrency amid concerns it is difficult to determine its origin and ownership.
Nigel Farage’s Reform UK, which this year became the country’s first party to accept contributions in digital currencies, is said to have received its first recordable donations in cryptocurrency this fall. It has set up a crypto portal to receive contributions and says it is subject to “enhanced” controls.
Reform received £9 million this month from Christopher Harborne, a cryptocurrency investor and businessman based in Thailand – the largest donation made by a living person to a British political party.
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