The SEC’s Crypto Interpretation: A Side-by-Side Comparison with Our Framework

Financial regulation has always looked to capture intermediaries, the money transmitters, brokers, exchanges, custodians, and others that move, hold or control assets on behalf of end users. In traditional financial services, that boundary is relatively clear: regulation attaches to those who intermediate transactions, control client assets, or provide financial services. It does not attach to the wider infrastructure that supports those activities. As digital asset ecosystems become more complex, that same boundary is being tested in new ways, making it important to defend the underlying principle. This piece examines how the EU’s implementation of the Travel Rule (via the recast Funds Transfer Regulation or “TFR”) correctly draws that line using the concept of “ancillary infrastructure,” and how a similar distinction appears in the U.S. GENIUS Act. At its core, the analysis is simple but consequential: when does a participant in a crypto system become a regulated intermediary, and when are they merely part of the infrastructure that makes the system work? These two pieces of legislation on both sides of the Atlantic show how policy makers can ensure regulation remains in force for the activities they want to capture, without blurring the distinction between infrastructure providers and financial intermediaries. In the EU: Where the Concept Comes From The EU’s idea of ancillary infrastructure appears in the recitals of the TFR, which guide how the regulation should be interpreted. The regulation explains (emphasis added): Persons that provide only ancillary infrastructure, such as internet network and infrastructure service providers, cloud service providers or software developers, that enable another entity to provide transfer services for crypto-assets, should not fall within the scope of the Regulation unless they perform transfers of crypto-assets. That is the entirety of it. The term is not further defined. There is no formal category or test in the operative provisions of the TFR, just this functional description and a few examples. But that short passage does a lot of good work. A Working Definition Taking the recital’s examples and its express limit together, ancillary infrastructure can be more specifically understood as: Infrastructure that is used by others in connection with crypto-asset transfers, but does not itself effect, execute, or control the transfer of crypto-assets, or provide custody of such assets. This is not a technology-based definition. It is a role-based definition, grounded in the regulatory perimeter. (This is consistent with other EU Regulations in the crypto-space, such as the Markets in Crypto-Assets (MiCA) Regulation.) What matters is not what the system looks like, but what the activity actually is. Two elements define the boundary: 1. Used in Connection with Transfers The infrastructure is part of the ecosystem that enables crypto-asset transfers. It may be essential to the functioning of the system. It may sit directly in the transaction flow. But it operates in a supporting role to the financial transaction, and is used by other entities such as CASPs and end users. 2. No Transfer or Custody Function The infrastructure provider does not: effect or execute transfers, control the movement of crypto-assets, or provide custody or control over those assets. That is the dividing line. Once a provider crosses into movement or control of value, it begins to look like an intermediary. If it does not, it remains infrastructure. What Counts as Ancillary Infrastructure The TFR itself provides only a handful of examples, but they point to a broader and consistent categorization. They are infrastructures that enable the system to function, without themselves engaging in the activities of financial intermediation. Internet Network Providers, such as internet service providers and network connectivity providers. These entities move data, not value. They carry transaction information across networks, but they have no relationship to the underlying assets being transferred or parties making the transfers. Cloud Service Providers, such as infrastructure-as-a-service providers and cloud hosting platforms. These providers supply computing power, storage, and hosting. They make it possible to run nodes, exchanges, and applications, but do not execute transfers, hold assets or interact directly with customers. Software Developers, such as developers of non-custodial wallets, developers of blockchain protocols, and providers of APIs and developer tools. These actors create the tools that others use to interact with crypto-assets. Once deployed, they do not control how those tools are used, nor do they execute or custody transactions. Technical Infrastructure Providers, such as node infrastructure providers, remote node access (RPC) providers, blockchain data indexing services, and validators and miners. These entities maintain and operate the underlying networks. They validate transactions, order and record them according to protocol rules, and ensure the system continues to function. They do not act on behalf of users, determine the purpose of transactions, or take custody of assets. Their role is protocol-level infrastructure and maintenance, not financial intermediation. Data and Analytics Providers, such as blockchain analytics firms, transaction monitoring tools, and risk scoring services. These providers analyze and interpret blockchain data. They support compliance, investigation, and risk management, but they do not initiate, execute, or control transfers. As we see, the concept of ancillary infrastructure covers a lot of different providers and activities, none of which intermediates or has direct responsibility for transfers or custody. This recognition provides a critical distinction between who is and who is not subject to regulation. A Parallel Approach: The GENIUS Act The same boundary appears explicitly in the U.S. GENIUS Act, which introduces the concept of a Digital Asset Service Provider (DASP) and provides exceptions for infrastructure providers. The Act defines DASPs by reference to familiar intermediary activities: exchanging digital assets, transferring them to third parties, acting as custodians, and providing financial services tied to issuance. In other words, DASPs are intermediaries. But the definition goes further by explicitly stating what is not an intermediary. The definition of DASP explicitly excludes: a distributed ledger protocol; developing, operating, or engaging in the business of developing distributed ledger protocols or self-custodial software interfaces; an immutable and self-custodial software interface; developing, operating, or engaging in the business of validating transactions or operating a distributed ledger; or participating in a liquidity pool or other similar mechanism for the provisioning of liquidity for peer-to-peer transactions. This is the same idea as ancillary infrastructure in the TFR, but stated directly in the text (rather than the recitals), and in greater detail. The Same Line, Two Drafting Styles The TFR and the GENIUS Act take different drafting approaches, but they arrive at the same place. The TFR uses a functional exclusion (“ancillary infrastructure”) The GENIUS Act uses explicit statutory carve-outs Both frameworks draw the same distinction: Intermediaries are regulated because they effect or execute transactions, or control or custody assets - activities that are traditionally within the regulatory perimeter. Infrastructure providers are not, because they enable systems rather than effect transactions or custody assets - activities that have never been captured within the regulatory perimeter, although firms using the infrastructure to undertake regulated activities may themselves require regulatory authorization. In both, that principle holds across network providers, software developers, validators and miners, and other technical actors. Conclusion: Why This Distinction Matters This boundary is not just a drafting detail, it continues to apply a foundational principle. Crypto systems are built in layers. Many actors contribute to how transactions are created, transmitted, and recorded. Without a clear distinction, regulation could easily expand to capture the entire stack. The concept of ancillary infrastructure prevents that outcome. It ensures that providing infrastructure, which is neutral and only indirectly involved, is not treated the same as acting as an intermediary in transactions. That principle is now reflected on both sides of the Atlantic. As digital asset markets evolve, it is likely to remain one of the most important lines in crypto regulation. And together these two pieces of legislation show how policy makers can update rulebooks for new technologies without unwittingly regulating the technology itself. We at Avalanche Policy Coalition have discussed this point multiple times over the last year, including in our April and May comment letters to the SEC Crypto Task Force, our response to the Australian Treasury consultation, and this blog post. Preserving the distinction between infrastructure and intermediary is one of our 2026 policy priorities.

London Calling Part 2: The UK’s Journey from Roadmap to Reality Eight months ago, we wrote about the UK’s crypto journey being still largely about direction of travel. The legislative perimeter had been sketched out, regulators had published their roadmap, and the ambition to become a global hub for digital assets was firmly back in the political vocabulary. The framework was coming, but for firms on the ground, it still felt a step removed from current reality. That is no longer the case. Since then, the UK has moved from strategy to execution at a pace that is difficult to ignore. The government has now laidthe statutory instrument that brings cryptoasset activities formally into the financial services regime, creating new regulated activities from trading platforms to stablecoin issuance and giving the FCA the legal foundations for a full rulebook. At the same time, the FCA has finalised a core package of consultations covering market structure, admissions and disclosures, market abuse, and a dedicated prudential regime - the operating manual for the future UK crypto market. Add to that the Bank of England’s systemic stablecoin proposals, a new stablecoin-focused regulatory sandbox and sprint, the confirmation of the authorisations gateway timeline, and even primary legislation clarifying that digital assets can attract property rights, the picture becomes clear: the UK is no longer designing a regime in theory. It is building one in real time. Authorisations Approaching The new regime will take effect on October 25, 2027. From 30 September 2026, firms will be able to apply for licences, with a five-month window in which early applicants gain the significant advantage of being able to continue operating while their applications are assessed (even after commencement). But there will be no automatic transition. Every firm, regardless of its current status, will need to pass through the gateway if it wishes to conduct regulated business in the UK. The shift from the MLR framework to FSMA authorisation changes the evidential threshold at the gateway. Applications will need to set out not only what the firm intends to do, but how its governance, risk management, capital planning and operational arrangements will meet the relevant Handbook standards by go-live. Early engagement through the FCA’s specialist crypto authorisations teams and the pre-application support service should help firms interpret those expectations, but authorisation will depend on the credibility and completeness of the proposed operating model not just the timing of the application. For the market, this is the moment when regulatory policy becomes a commercial timetable. From Speed to Calibration For years, the standard critique of the UK was that it was moving too slowly. But that argument no longer passes muster. Few major jurisdictions have attempted to deliver, in parallel, a full conduct regime, a market-structure framework, a prudential rulebook, a systemic stablecoin model, an authorisation gateway and a legislative perimeter, all on a clearly sequenced and short timeline. The UK is now doing exactly that. The question has therefore changed. It is no longer whether the UK can move fast enough. It is whether the regime, once complete, will be calibrated well enough to compete. At Avalanche Policy Coalition, we hope that the calibration will properly take into account a workable token classification system that differentiates financial instruments from other types of assets so that the regulatory perimeter is correctly scoped, as well as preserve the distinction between infrastructure and intermediation. Developers, validators, node operators, and open-source contributors, among others, who do not custody assets or exercise unilateral discretion should not be treated as financial intermediaries. Protecting infrastructure neutrality will support innovation without weakening consumer protection. The Coherence and Competitiveness Challenge The UK’s great structural advantage has always been its integrated regulatory architecture. With HM Treasury setting the perimeter and the FCA and Bank of England dividing responsibilities along clear conduct and financial-stability lines, the system is far less fragmented than in jurisdictions where multiple federal and state authorities overlap. That should make it easier to deliver a single, coherent framework. But coherence is not automatic. It has to be designed. Firms are now looking at how the layers fit together in practice: how the FCA’s stablecoin rules interact with the Bank’s systemic regime, particularly as firms consider the transition from an FCA-only framework to dual supervision once systemic thresholds are reached; how prudential requirements align with conduct expectations; and how market-abuse, disclosure and trading-platform rules operate as a unified whole rather than as separate compliance exercises. This is not an academic question. Global firms do not build to individual consultations; they build to the overall regime. That determines where they locate trading infrastructure, where they base senior management, where they deploy capital and where new products are launched first. If the cumulative effect is predictable and proportionate, capital and talent will follow, and the UK will continue to be a competitive force around the world. Birdseye View The UK has reached the point where it can no longer be described as a jurisdiction “planning” its crypto regime. It is implementing it, on a defined timeline, with a full licensing process in sight. That is a significant achievement and one that only a small number of global financial centres have matched. The question is no longer one of speed or first mover advantage. It is about identifying the right risks and calibrating them appropriately, allowing firms to operationalise with confidence. The UK is at a crossroads. If the final framework is as coherent and proportionate, the UK has a genuine opportunity to translate regulatory progress into market leadership. Coherence requires not only institutional alignment, but clarity that different asset types and activities are appropriately regulated (or not). That is what will attract firms who are not simply looking for certainty, but for a regime within which they can scale. Otherwise, the UK will struggle to convert historical and structural advantage into long-term competitive advantage.

In August we compared the upcoming stablecoin regimes in the US and UK. Since that post, the UK has moved forward in shaping how these digital assets should be regulated as part of the financial system, especially if they become widely used for everyday payments. This post provides an update to describe the significant changes in direction in the latest UK proposals from the Bank of England and HM Treasury. The Bank of England has the mandate to create rules for ‘systemic’ stablecoins given their potential impact on financial stability, while HM Treasury (part of the UK government) is creating the detailed law that will give UK regulators the powers they need (and set the overall guidelines) to develop regulation. The big change in the UK is the focus on “systemic” stablecoins, and how they and their issuers are to be regulated.  The concept of systemic stablecoin regulation does not appear directly in US law under the GENIUS Act, although provisions of GENIUS require regulators to evaluate stablecoins and their issuers for potential threats to financial system stability. Below, we focus on the UK proposal. Why the UK is Focusing on Stablecoins Now Stablecoins (digital tokens designed to maintain a stable value against a fiat currency) remain the fastest-growing form of money in the digital economy. They are a key pillar of our token classification system, which you can read more about here. The UK government and regulators have been clear: if stablecoins are going to function like money in daily life and not just in crypto trading, then they must be subject to a regulatory framework that protects consumers and safeguards financial stability. The goal is to integrate stablecoins responsibly into the UK’s financial architecture, while also supporting the innovation they represent. This will go hand-in-hand with proposals for comprehensive crypto regulation that were originally introduced in 2023 through proposed changes to the Financial Services and Markets Act. The UK government (HM Treasury) ‘laid’ secondary legislation in December 2025 that would put much of the 2023 updates into effect, including defining stablecoins as regulated financial instruments and regulating their issuance.   The Core Focus: “Systemic” Stablecoins In coordination with HM Treasury and the FCA, the latest Bank of England consultation paper was published in November 2025. Its focus is on pound sterling-denominated “systemic” stablecoins. These are stablecoins that become so widely used in everyday retail payments that, if something went wrong, they might affect not only consumers and businesses at scale, but the wider financial system as well. What makes a stablecoin systemic? While the full details will be clarified in the final regulation, it’s essentially based on how many people and businesses use it (and for what kinds of payments) and the extent of its interconnections with the financial system. HM Treasury has the power to designate stablecoins as systemic and once it has done so, the stablecoin would fall under a joint regulatory regime, with the Bank of England looking after financial stability and prudential requirements, and the Financial Conduct Authority (FCA) overseeing consumer protection and conduct under its own upcoming stablecoin regime.  Non-systemic stablecoins will be regulated solely by the FCA under existing and upcoming cryptoasset rules. A non-systemic stablecoin, for example, is one used for a day-to-day payment or as an on-/off-ramp to the crypto ecosystem that does not have a critical mass of users in the UK.  Note that even with this consultation paper, much of the regulation of stablecoins, their issuers and their usage remains subject to additional rulemaking.  Those looking for certainty need to remain patient, notwithstanding that the government has been considering these issues since at least 2023. New Backing Asset Rules: A Balancing Act One of the biggest changes in the new proposals is how issuers of stablecoins designated systemic would be required to back the coins they issue; that is, what assets they must hold to ensure that coins remain redeemable at a fixed value in pounds sterling. Under the draft proposals: At least 40% of backing assets must be held as unremunerated (non-interest-bearing) deposits at the Bank of England - effectively very liquid central bank money. Up to 60% can be held in short-term UK government debt (gilts), which can earn a return and help make issuer business models viable. This is a shift from earlier proposals that would have required almost all backing assets to be held at the central bank with no interest.  The Bank of England is also considering offering liquidity lines to issuers, and proposes allowing them to repo out backing assets as a means of accessing additional liquidity. The idea is to strike the right balance: making sure issuers can always meet redemption requests even in a crisis, while also not squeezing them out of business by forcing ultra-conservative backing rules.These requirements will make systemic stablecoin issuers look a lot like so-called narrow banks and the stablecoin itself a lot like a central bank digital currency. “Step-Up” and Transitional Rules There are also transitional measures to support issuers that are systemic from the start. Such firms could temporarily hold up to 95% of their backing assets in short-term government debt during their early growth phase, before scaling into the full 60/40 structure. This “step-up” regime is designed to give new market entrants space to grow while still ensuring they eventually meet stringent safeguards. It is designed to limit worries of a ‘cliff-edge’ from transitioning from the FCA to the BoE’s systemic regime. Consumer Safeguards and Limits Controversially, to reduce the risk that stablecoins could pull deposits out of the banking system too quickly (which could affect credit and financial stability) the proposals include temporary holding limits per systemic stablecoin: £20,000 per individual £10 million per business (with exemptions possible for some business uses) These limits are framed as transitional, with regulators monitoring whether they can be adjusted as the market matures. It is not clear how these limits would be enforced from a practical perspective. Other Noteworthy Requirements in the Consultation A few other important parts of the consultation include: Direct payment system access: Systemic stablecoins should be able to settle with traditional money systems, making redemptions and transfers smoother. Safeguarding backing assets: Reserves must be ring-fenced and held in the UK, with clear legal claims for coin-holders. Subsidiary requirements: Foreign stablecoin issuers targeting the UK market would need UK-based and regulated subsidiaries. Birdseye View  While the UK continues to develop and adapt its framework for stablecoins, it seems to be still mired in basics and with overlap between the FCA and BoE’s roles. The BoE’s updated stablecoin policy proposals reflect a pragmatic approach: significant safeguards to protect users and financial stability, flexibility to support issuer viability, and a clear path toward integrating stablecoins into the payments system, which will allow them to be part of commerce in the UK. But some basic concepts still need to be clarified. And the UK is running out of time. Whether this proposed framework will help the UK compete with the US’s crypto-friendly stance and the EU’s MiCA regime remains a live debate.  It’s important to note that these are draft proposals open for comment, and we expect there will be robust discussion between the Bank of England and industry on the details. They are not set in stone and may be subject to change. We will continue to watch with interest for new developments and await the final rules.