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With the publication last month of the Financial Conduct Authority\u2019s (FCA) cryptoassets regime policy statements<\/a><\/strong>, the UK has reached an important milestone in its regulation of the virtual asset industry. After years in which policy debates have oscillated between enthusiasm for innovation and concern about criminal misuse, the question is now whether the UK can ensure effective regulation without stifling responsible innovation or leaving material risks to grow in the shadows.<\/p>\n The package represented by the statements is broad. It covers admissions and disclosures, market abuse, stablecoin issuance, custody, trading platforms, intermediaries, staking, prudential requirements, operational resilience and the application of key parts of the FCA Handbook to regulated crypto activities. In other words, the UK is moving from partial oversight to a much more complete regulatory architecture, through which credibility and reliability (as underlined in a recent FCA webinar<\/a><\/strong>) may become its greatest competitive advantage.<\/p>\n However, achieving this is a harder task than it first appears. Crypto is no longer a self-contained market of speculative tokens and specialist exchanges. Stablecoins, tokenised deposits, decentralised finance, privacy-enhancing technologies and emerging forms of automated payments are increasingly interacting with the traditional financial system, presenting co-mingled risks that may accelerate and amplify existing financial system vulnerabilities. Furthermore, as explored at a recent workshop<\/a> <\/strong>hosted by the Centre for Finance and Security at RUSI in partnership with EY, a further risk is emerging: that the UK may design regulation for the parts of the crypto ecosystem that are most visible, while the most important risks migrate to the boundaries between \u2013 and outside \u2013 regulatory systems.<\/p>\n That matters for both financial crime policy and the UK\u2019s ambition to remain a leading centre for financial innovation. A regulatory regime that cleans up the most obvious parts of the market but fails to address the less visible infrastructure through which illicit finance moves will not be judged effective for long \u2013 and will be open to ongoing exploitation by criminal actors who are known to \u2018shop around\u2019 for systemic weaknesses. Equally, a regime that imposes high burdens without offering clarity, predictability and credibility will struggle to attract the responsible firms the UK says it wants.<\/p>\n