Mar 2025
The Compliance Trap: Why Rapid Growth Can Lead to Regulatory Failures
Growth at speed brings risks. When compliance fails to keep pace, companies become vulnerable to financial crime, regulatory penalties and reputational damage.
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Today, 29 April 2025, HM Treasury released the near-final draft of the Financial Services and Markets Act 2000 (Cryptoassets) Order. It confirms that a wide range of cryptoasset activities will soon fall within the UK regulatory perimeter. This is a pivotal development for digital finance — shifting crypto from the edges of regulation into the core of the financial system.
The scope is broad. Firms will require FCA authorisation to operate trading platforms, issue stablecoins, provide custody, or conduct staking, dealing, arranging, and lending activities involving cryptoassets. Overseas firms targeting UK retail clients will also be in scope.
The message is clear: UK regulation is no longer a distant concept. It is arriving — and with it, new standards and new expectations.
The FCA will open a window for applications before the regime comes fully into effect. Transitional arrangements will allow for managed exits or migrations — but only for firms that engage proactively.
The regime will also:
• Replace interim financial promotion permissions
• Embed cryptoasset activities into the Money Laundering Regulations
• Define the regulatory treatment of stablecoins and tokenised deposits
Firms that are operating in, or serving, the UK market should now be assessing their exposure and preparing their response.
Regulatory alignment will increasingly define which firms are viable partners, platforms or counterparties. The shift from optional to mandatory compliance introduces new challenges — but also clarifies the rules of engagement.
Core questions firms should be asking now include:
• Are we conducting activities that fall under the new regime?
• Do we have governance, controls, and financial crime frameworks that can withstand regulatory scrutiny?
• Have we mapped our transitional risks — including authorisation timelines, potential wind-down, or restructuring?
Lysis Group is already working with firms in the UK and internationally to assess their readiness and plan for this shift. Our current work includes:
• Scoping and impact analysis for firms engaging in cryptoasset activities
• Support with authorisation strategy, planning and application drafting
• Development of appropriate governance, risk, and compliance frameworks
• Preparation for FCA supervisory engagement and ongoing obligations
Whether entering the UK market or adapting an existing model, firms need to act now to be prepared for what’s ahead.
The UK’s regime is part of a wider global trend toward harmonisation. This week, the FCA’s Chief Data, Information and Intelligence Officer highlighted several key initiatives underway:
• Continued use of the Regulatory and Digital Sandboxes
• The launch of the Digital Securities Sandbox for testing tokenised models
• Heightened enforcement activity — including over 900 scam sites removed and 1,700+ consumer alerts issued
• Close involvement in international forums like FATF, IOSCO, and the FSB
These developments reinforce that the UK is not acting in isolation. Firms should expect more alignment across jurisdictions — and more scrutiny of how risks are managed.
The FCA’s 2025–26 Business Plan points to a broader digital finance agenda. Beyond crypto, we can expect:
• Market abuse and disclosure rules for trading venues
• Prudential standards for cryptoasset firms
• Regulatory oversight of stablecoin-based payments (with the Bank of England)
• Tighter links between product design, consumer outcomes, and promotion rules
The regulatory foundation is being laid for the future of digital finance. Firms that engage now will be in a stronger position as expectations evolve.
For digital asset firms, the markers of success are shifting. It’s no longer about rapid onboarding or token launches — it’s about sustainable models that stand up to scrutiny.
This includes:
• Resilient financial crime controls
• Clear governance and accountability
• Scalable infrastructure that can evolve with regulation
Firms that embed these principles early will be better equipped to grow — and less exposed when the regulatory perimeter tightens.
We’ve worked with regulated firms, fintechs, and digital asset platforms as the sector has matured. Our strength lies in helping clients translate regulatory change into practical steps — building compliance into business strategy from the outset.
As the UK regime takes shape, we’re here to support firms that want to move confidently through the transition, not reactively.
If your firm is navigating the new UK cryptoasset framework, we’re ready to help.
Let’s discuss what’s next.
Growth at speed brings risks. When compliance fails to keep pace, companies become vulnerable to financial crime, regulatory penalties and reputational damage.
Financial crime compliance is undergoing a major transformation as regulatory demands, emerging technologies and evolving criminal tactics reshape the landscape.
The FCA published its formal response to the UK Government’s letter, which outlined expectations for fostering growth and innovation in the financial services sector.
