FCA seeks views on its future cryptoasset regime

Hot on the heels of the UK government releasing draft legislation to regulate cryptoassets, the Financial Conduct Authority has opened a discussion paper on regulating cryptoasset activities. The paper shows the FCA’s current thinking on what rules should apply but the details will be fleshed out in future consultations. Feedback is invited by 13 June 2025 giving only a very short window for firms and trade associations to respond.

Future cryptoasset regulatory regime

The FCA currently has limited scope to regulate cryptoassets e.g. under anti-money laundering rules. HM Treasury plans to change this by bringing some crypto-related activities into the scope of the financial services regulatory framework. The legislation – which is currently in draft – will allow the FCA to set rules for those providing cryptoasset business in the UK and/or with UK consumers.

FCA Discussion Paper 25/1

The FCA is working through a crypto roadmap to develop the rules which will apply to firms under the incoming regime. For example, last year a discussion paper considered the admissions and disclosures and market abuse regime for cryptoassets. Its latest paper – FCA DP25/1 – explores:

• cryptoasset trading platforms
• intermediaries
• lending and borrowing
• use of credit to purchase cryptoassets
• staking
• DeFi

Cryptoasset trading platforms

In general, cryptoasset trading platforms servicing UK retail consumers will need to be authorised in the UK under the future regime. These CATPs would be subject to rules e.g. in relation to market-making activities and managing conflicts of interest. They would also be subject to pre- and post-trade transparency requirements.

A key question for international cryptoasset exchanges is whether they will need to set up a subsidiary in the UK to continue accessing UK consumers. The FCA acknowledges that requiring this could limit UK investors’ access to international liquidity pools. One option it is considering is allowing an overseas trading platform to provide its services through a UK branch as long as it also has a separate UK authorised subsidiary in its group (as some already do). However, the FCA acknowledges that there may be “other structures” that meet its objectives of ensuring that it is able to exercise sufficient oversight over the operations of the offshore exchange.

The FCA thinks that CATPs should take on various responsibilities on behalf of clients when they offer direct access to their trading systems. This includes monitoring trading activity, ensuring compliance with platform rules and relevant regulations (e.g. market abuse), and setting controls and limits for customer profiles. The FCA also proposes requiring that CATPs must operate under non-discretionary rules, so closing off the possibility of systems exercising discretion in the execution of customers’ orders as is permitted by OTFs for non-equity financial instruments under the FCA’s existing rules.

Drawing on IOSCO recommendations, the FCA raises questions about the vertical integration of CATPs. The FCA is considering whether to require legal or functional separation between the firm operating a CATP and the issuer of the cryptoassets admitted to trading on the CATP. Also, according to the FCA, CATPs should not be permitted to deal on own account on their own platform and should only be permitted to do so off platform if the risks can be mitigated.

Cryptoasset intermediaries

The FCA notes that the risks from cryptoasset intermediation are similar in principle to those from intermediation in traditional financial markets. It seeks views on order-handling and execution, conflicts of interest, pre- and post-trade transparency and client categorisation.

For example, the FCA is considering applying best execution obligations to cryptoasset intermediaries. Because the fair market price for a cryptoasset may not be obvious, the FCA may give guidance recommending that firms check the prices for an order across at least three UK-authorised CATPs before execution. It is also considering a requirement for any firm executing orders for UK consumers to ensure they are ultimately executed only on UK-authorised CATPs rather than on unauthorised venues overseas.

Cryptoasset lending and borrowing

The FCA is considering restricting firms from offering cryptoasset lending and borrowing products to UK retail consumers. It also recognises that the market is evolving rapidly and so suggested alternatives for reducing the risks associated with these products. This could include imposes consumer credit rules and requiring firms to get express consent that their assets are being transferred.

If the FCA restricts retail access to cryptoasset lending and borrowing, it may exempt qualifying stablecoins for specific uses. The FCA does not, however, propose any restrictions or interventions on the borrowing/lending of cryptoassets in the institutional space.

Use of credit to purchase cryptoassets

The FCA is considering restricting firms from accepting credit as a means for consumers to buy cryptoassets.

Staking

Staking – where cryptoassets are used and locked for blockchain validation – will be regulated under the UK regime. The FCA suggests proposals to address technological risks, lack of consumer understanding and safeguarding risks. It suggests, for example, that firms could be held liable for financial losses suffered by consumers where the firm has inadequately assessed the operational resilience or defective performance validators (including for losses suffered from slashing), excluding where incidents happen outside their control e.g. blockchain disruptions.

DeFi

Decentralised finance arrangements are not caught by the incoming UK cryptoasset regulatory regime where they are truly decentralised. If there is a “clear controlling person” carrying on a regulated activity, then the FCA intends to apply the same requirements as for centralised exchanges. The FCA indiates that it may introduce guidance on DeFi and hold a stakeholder forum to gather further views, including on how to assess the degree of centralisation/decentralisation.

Next steps

The FCA says that it is open to considering alternatives to its proposals in DP25/1. It invites feedback by 13 June 2025 and will then publish a consultation paper with draft rules.

By the summer the FCA will consult on proposed rules and guidance for issuing a qualifying stablecoin, safeguarding qualifying cryptoassets and specified investment cryptoassets. It will also consult on the prudential framework for cryptoassets and prudential requirements for qualifying stablecoins and safeguarding.

A consultation on the wider conduct and firm standards, including the Consumer Duty and conduct of business obligations, will follow in Q3 2025.