Nadia Suleiman
London, England
Oct 4, 2026

HM Treasury’s proposed stablecoin amendments would draw a narrow boundary between payments and cryptoasset trading: specified payments using UK-issued qualifying stablecoins would be excluded from certain cryptoasset activities, while trading and lending involving those tokens would remain within the regulatory perimeter.

The distinction matters for businesses that combine payments, exchange services and custody. A payment-related exclusion would attach to a particular activity—not give the firm, or the stablecoin it handles, a blanket exemption.

The Treasury’s policy note dated 15 September 2026 describes draft amendments to the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026. Their stated purpose is to prevent overlap between the incoming cryptoasset framework and payment-services legislation.

What the stablecoin exclusions would cover

The proposal identifies three regulated cryptoasset activities from which specified payment activity involving UK-issued qualifying stablecoins, or UKQS, would be excluded:

• Dealing as principal.
• Dealing as agent.
• Arranging deals.

It would also exclude temporary stablecoin holdings from the cryptoasset safeguarding perimeter where those holdings are strictly necessary to execute a payment transaction.

These are targeted changes. They would not exempt every stablecoin, every transfer of a qualifying token or every service offered by a payment provider.

The Payment Services Regulations 2017 remain central to the proposed division of responsibilities. Removing an activity from parts of the cryptoasset perimeter would not, by itself, make that activity unregulated. Equally, the proposed exclusion should not be read as settling every question about how payment-services legislation applies: firms would still need to assess the relevant definitions and conditions.

One token, different regulatory activities

The practical challenge is that the same stablecoin can serve different purposes within a single customer journey.

A business might process a payment, briefly hold the tokens needed to complete it and separately offer customers a service for buying or selling cryptoassets. Under the proposal, the qualifying payment activity could benefit from an exclusion without the associated trading service doing so.

An account funded with stablecoins before a cryptoasset purchase illustrates the boundary. The movement of funds and the subsequent trade should not automatically be treated as one exempt payment service. Each step would need to be assessed against the final legal wording.

That makes transaction design more important than product branding. Calling a service a “payments wallet” would not determine whether all its functions fall outside cryptoasset dealing or safeguarding rules.

The temporary-holding provision is similarly limited. A brief holding period alone would not be enough: possession of the tokens must be strictly necessary to execute the payment. A balance retained for another purpose, or custody provided as a separate service, cannot simply be assumed to qualify.

Stablecoin lending would remain regulated

The policy note takes a different approach to lending and borrowing involving qualifying stablecoins. Those activities would remain within the regulated dealing perimeter and subject to Financial Conduct Authority oversight.

The contrast is significant. A token’s qualifying status would not determine its regulatory treatment in isolation; using it for a payment and using it in a financing transaction would produce different analyses.

The Treasury also describes coordination with industry over lending and borrowing in institutional collateral arrangements. That work matters because payment, financing and collateral functions can sit close together in wholesale-market transactions. The note does not establish a general exemption for those arrangements.

What firms need to resolve

For compliance and product teams, the immediate task is to map activities rather than classify an entire business as either a payment provider or a cryptoasset firm. That includes identifying which entity performs each function, why tokens enter its control and what happens if a payment is delayed, fails or leaves a residual balance.

Those are implementation questions, not evidence that every such case is already resolved by the draft. The final legislation, alongside any relevant FCA rules or guidance, will be important to determining the boundary in practice.

The proposal’s direction is nevertheless clear: avoid overlapping regulation for defined stablecoin payment activity without creating a route around the rules for trading, custody or financing. Whether that delivers proportionate regulation will depend on how clearly firms can identify—and demonstrate—where the payment ends and another regulated service begins.