FCA takes first step on its crypto roadmap

The FCA recently issued its crypto roadmap to map the future development of a comprehensive regulatory regime for cryptoassets. Now the FCA has started on that journey by issuing a discussion paper on admission to trading and market abuse (DP24/4). The deadline for sharing feedback is 14 March 2025.

Balancing act

The areas of regulation covered in this paper are a pillar of the future UK cryptoasset regime. Looking ahead to that regime, crypto firms who do business in the UK are facing direct costs, both one-off and ongoing, and potential changes to business models. The FCA acknowledges this and aims for balanced regulation that addresses market risks without stifling growth.

HM Treasury will introduce the framework for the cryptoasset regime in the statute books, with draft legislation expected in 2025. DP24/4 explores what the FCA requirements in its rulebook might cover.

Admissions and disclosures

The FCA’s proposals align with the prospectus regime for traditional securities, with some differences to take into account the specific characteristics of cryptoassets. The person who applies for admission to trading would be responsible for producing certain admission documents. The cryptoasset trading platform would conduct due diligence on those documents, as well as on the issuer and others associated with the offer.

A key part of the regime will be the disclosure requirements. The FCA expects firms to provide sufficient detail to enable consumers to make an informed decision. This could include, for example, information about the cryptoasset’s track record, operational resilience and sustainability-related factors, as well as details about the number of tokens in circulation and any backing assets.

Cryptoasset trading platforms will play a gatekeeper role under this regime. They will need to perform sufficient due diligence to allow them to make an informed assessment of the potential risks to consumers. They will need to have a reasonable level of certainty that offerors’ disclosures are true and not misleading. The FCA is also considering a requirement for trading platforms to disclose their standards for admission of cryptoassets to trading and their criteria for rejecting admissions.

Market abuse

Because of the cross-border and fragmented nature of cryptoasset markets, the FCA has concluded that any crypto market abuse regime will fall short of the equivalent regime for traditional securities. Even so, it believes it can reduce the instances of market abuse by imposing obligations on cryptoasset trading platforms to detect, deter and disrupt market abuse.

The scope of the proposed regime would be limited to behaviour related to cryptoassets admitted to trading on a UK-regulated platform. The FCA does not explore territorial scoping issues in detail in the discussion paper (e.g. its approach to trading in those cryptoassets by non-UK market participants).

The aim is that requiring public disclosure of inside information should provide more equal opportunity for UK market participants to act on new information. The FCA proposes that the person responsible for disclosing relevant inside information will either be the issuer of the cryptoasset or whoever else has initiated admission to trading (which may be the trading platform itself). In the latter scenario, the responsibility would be limited e.g. to disclosing inside information of which they are reasonably aware.

A key aspect of the future market abuse regime for cryptoassets will be the “safe harbours” which exempt certain behaviours. The FCA is open to considering a safe harbour for coin burning – similar to the exemption for share buy-back programmes – but wants to hear from the industry on the criteria it could impose to ensure this practice is legitimate. The FCA also wants feedback on maximal extractable value and other novel features that may require safe harbours. Also on the table is an exception allowing for a delay in disclosing a shortfall in backing assets if disclosure would pose financial stability risks.

Next steps

Feedback from the discussion paper will inform a future FCA consultation with draft rules. According to the FCA’s roadmap, this will be released in Q3 2025.