FCA proposes rules for stablecoin issuance and cryptoasset custody

The FCA has taken a significant step on its cryptoassets roadmap by opening a consultation on rules for stablecoin issuers and cryptoasset custodians. Its draft rules would require firms in the scope of this part of the incoming UK crypto regime to implement substantial compliance systems, policies and procedures. The consultation closes on 31 July 2025.

First round of crypto-specific rules

The UK Government has drafted legislation outlining the crypto-related activities that it plans to regulate. In parallel, the FCA is working through a roadmap to develop the rulebook that will apply to firms that fall within the scope of the UK regime. Previously, the FCA has only published discussion papers asking for feedback on the principles of its crypto policy. Now, for the first time, the FCA is proposing crypto-specific rules.

In CP25/14 the FCA consults on rules relating to two future regulated activities:

• issuing qualifying stablecoins, and
• safeguarding of qualifying cryptoassets and relevant specified investment cryptoassets.

Separate consultations will cover how the FCA plans to apply wider conduct rules to qualifying stablecoin issuers and qualifying cryptoasset custodians.

Key proposals for stablecoin issuers

• Scope: The draft rules for issuers focus on stablecoins that seek to maintain their value relative to a single fiat currency. The FCA invites views on whether issuers of multi-currency stablecoins should be held to similar standards.
• Full reserve backing: Issuers would be required to maintain the value of stablecoins they issue by always holding backing assets in amounts equivalent to the value of the stablecoins that have been minted.
• Asset pool composition: Issuers would be required to structure their backing asset pool to ensure that it contains only certain asset classes. These asset classes include on-demand deposits and government treasury debt instruments that mature in one year or less. In some circumstances, and on notification to the FCA, issuers may expand the asset pool to include certain other assets. The composition of the pool must be able to meet the requirements for redemption at all times and 5% of the asset pool must contain on-demand bank deposits.
• Interest restriction: Issuers may not pass on interest earned on backing assets to stablecoin holders.
• Safeguarding: Issuers must promptly segregate backing assets on receipt and place the assets with a third party outside of their group. The backing assets will be subject to a statutory trust. The issuer would act as trustee and owe fiduciary duties to stablecoin holders.
• Reconciliations: Issuers would need to carry out reconciliations of backing assets at least daily and to ensure that shortfalls or excesses of assets are addressed and that stablecoins are minted or burnt as required.
• Redemption: Issuers would need to redeem stablecoins at par irrespective of the value of the backing assets. Subject to limited exceptions, once an issuer has received a valid request for redemption it would have to place a payment order to the stablecoin holder’s account by the end of the business day following the receipt of the request. Fees charged for redemption must be commensurate with the operational costs incurred for executing redemption. Issuers may not impose a redemption amount of stablecoin per redemption request.
• Third parties: Issuers would be subject to requirements to carry out due diligence on third parties that act on their behalf and to ensure that comprehensive contractual agreements are in place with such third parties. Agreements must include sufficient information sharing with the issuer to allow for ongoing monitoring of the relevant third party.
• Disclosures: Issuers would be required to publish certain information e.g. the number of stablecoins and the backing asset composition at least once every three months. Issuers must undertake an independent review at least annually to verify that statements made in the previous 12 months in relation to the 1:1 ratio between the stablecoin pool and the backing asset pool are accurate.
• Design: Issuers must identify and manage the risks associated with the design of a stablecoin before it is issued.

Key proposals for cryptoasset custodians

• Segregation of client assets: Custodians would need to segregate all client assets from the firm’s own assets. Qualifying cryptoassets would be held under non-statutory trusts. The FCA plans to consult separately on rules for when clients’ cryptoassets exit the trust environment and where a firm's activities are not reconcilable with trust arrangements.
• Record-keeping: Custodians would be required to maintain up-to-date client-specific cryptoasset records. These records must not be supplemented by records kept by third parties or on the blockchain.
• Reconciliations: Custodians would be required to carry out reconciliations every business day. Any discrepancies should be addressed by removing excesses or addressing shortfalls.
• Operational security: Custodians would be required to ensure that they have controls in place to ensure that private keys and means of access to cryptoassets are controlled and stored securely. Custodians would not be subject to uncapped liability in the event of a malfunction, hack or other loss outside of their control but would be liable for negligence, breach of contract and breaches of FCA rules.
• Third parties: Custodians would be permitted to use third parties. Before appointing a third party, a custodian must perform sufficient due diligence and impose certain contractual requirements on that third party.

How should firms prepare?

Stablecoin issuers who think they would be in the scope of the UK regime should start giving careful consideration to the potential impact on their backing arrangements. Issuers should also give thought to the systems that will be required to perform at least daily reconciliations and to ensure that redemptions are processed promptly.

Cryptoasset custodians under the UK regime will need to review their current segregation, record-keeping and reconciliation controls to identify where enhancements will need to be made. Any arrangements with third parties will also need to be reviewed to ensure that the third parties are subject to thorough due diligence.

Next steps

Firms should submit their feedback to the FCA before the 31 July 2025 deadline. The FCA plans to finalise the rules next year.

The FCA published CP25/14 on stablecoin issuance and cryptoasset custody alongside a separate consultation on a new prudential regime for cryptoasset firms. Read our blogpost: FCA proposes MiFID-style capital requirements for crypto firms