UK Treasury’s Stablecoin Exemption Draft Offers Limited Payment Relief for Transactions

HM Treasury dropped a draft regulation on September 15 that rewrites parts of the UK’s incoming crypto rulebook. The document — formally titled the Financial Services and Markets Act 2000 (Cryptoassets) (Miscellaneous Amendments) Regulations 2026 — was laid before Parliament and targets a pretty specific slice of the market: qualifying stablecoin payments.

It’s not law yet. That matters.

What the Exemptions Actually Cover

The draft carves out relief from three regulated activities: dealing as principal, dealing as agent, and arranging deals. But only for straightforward stablecoin transfers. Treasury isn’t handing out a blanket pass here — the exemption is narrow, and the boundaries are drawn carefully.

If a recipient has to return the stablecoin at any point, the transaction stays regulated. Full stop. Swapping a qualifying stablecoin for another cryptoasset — Bitcoin, for example — doesn’t qualify for the payment exclusion either. So traders hoping the new rules open a back door into lightly regulated crypto-to-crypto swaps are probably going to be disappointed. The draft is pretty clear on that front.

There’s also a separate exemption tucked in for title-transfer collateral and repo arrangements involving qualifying stablecoins. That one’s wholesale-style, though — it only applies when the original holder isn’t a consumer or doesn’t fall into a category the Financial Conduct Authority specifies. Retail participants don’t get that carve-out.

And what counts as a “UK qualifying stablecoin”? The draft makes clear it’s not just any token that tracks sterling. Tokens issued overseas don’t automatically qualify. The stablecoin has to come from a firm operating through regulated activities in the UK. Firms without the right permissions are out.

Custody Relief — A Shift From Earlier Proposals

One of the more meaningful changes from earlier Treasury thinking involves custody. Under the previous proposal, firms holding a qualifying stablecoin even briefly — say, during payment execution — would still need safeguarding permission. That was a sticking point for payment processors who argued the requirement made no practical sense for short-term, transactional holding.

The updated draft backs off that position. Temporary holding of a UK qualifying stablecoin specifically tied to executing a payment now gets custody relief. Short-term payment execution and longer-term custodial services are treated differently, which is kind of a big deal for firms building payment infrastructure on stablecoin rails.

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Longer-term custody, though? Still regulated. The draft doesn’t blur that line.

Financial promotion rules mostly follow the same logic. The exclusions for transfer, exchange, collateral, and repo activities generally carry over to marketing. But arrangements that require the return of stablecoins don’t get the basic promotion exemption. So a firm can’t just slap a payment-exemption label on a product and market it freely if the underlying structure involves stablecoin return obligations.

Timeline and What’s Still Unclear

The amendments covering dealing, arranging, and financial promotion are set to kick in on October 25, 2027. That date lines up with when the FCA’s broader new regime for crypto firms starts. Regulation 4 amendments come into force once the instrument is actually enacted — which requires Parliamentary approval first.

And that approval isn’t guaranteed to be quick or smooth. The draft still needs to clear Parliament, and HM Treasury hasn’t finished the broader long-term rules for stablecoin use in payments. Further adjustments before finalization seem likely, though the source didn’t specify a timeline for those additional reforms.

So there’s a real gap between where things stand now and what the full regulatory picture looks like by late 2027. Firms trying to plan around these rules are working with partial information.

Stablecoin adoption across global payment networks has grown fast over the past few years, and UK regulators have been under pressure to produce a framework that keeps London competitive without gutting consumer protections. The draft seems to try threading that needle — fostering straightforward payment use while keeping tighter oversight over anything that starts to look like financing, investment, or custody.

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Whether it succeeds at that balance probably depends on how the FCA interprets the boundaries in practice. The draft sets the legislative frame, but the FCA’s eventual rules and guidance will determine how firms actually operate day to day. No details yet on when that guidance arrives.

For crypto firms already operating in the UK or planning to, the October 25, 2027 date is the one to anchor on. The custody relief shift is real and meaningful. But the exemptions are narrow enough that compliance teams will need to map every product and transaction flow against the specific conditions in the draft — especially anything involving stablecoin return obligations or cross-asset swaps.

The draft was presented to Parliament on September 15.