Regulatory Influencer: What Should Crypto-Assets Firms Be Thinking About in Advance of a UK Regulatory Regime?

On May 2, 2025, the UK’s Financial Conduct Authority (FCA) published a discussion paper (DP25/1: Regulating cryptoasset activities) on its proposals for a regulatory regime for crypto-asset trading platforms, intermediaries (including those dealing in qualifying crypto-assets as principal; dealing in qualifying crypto-assets as an agent; and arranging deals in qualifying cryptoassets), crypto-asset lending and borrowing, staking and decentralised finance, and the use of credit to purchase crypto-assets. 

This follows HM Treasury’s publication of the draft statutory instrument (SI) on the Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025 on April 29, 2025. The draft SI aims to bring crypto exchanges, dealers, agents and other crypto-asset service providers within the UK regulatory regime.

The draft provisions also:

• Define qualifying crypto-assets and stablecoins as the principal classes of crypto-assets, which are specified as investments under the Financial Services and Markets Act 2000 (FSMA).
• Specify certain activities related to crypto-assets as regulated activities requiring authorisation. The following have been highlighted as a specified kind of activity in the draft SI: arranging deals in qualifying crypto-assets; issuing qualifying stablecoin in the UK; safeguarding of qualifying crypto-assets and relevant specified investment cryptoassets; operating a qualifying crypto-asset trading platform; dealing in qualifying crypto-assets as principal; dealing in qualifying cryptoassets as agent; and qualifying cryptoasset staking.
• Amend the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) to reflect the inclusion of crypto-assets in the regulatory landscape.

The FCA also published two consultation papers (CP25/14: Stablecoin issuance and cryptoasset custody) and (CP25/15: A prudential regime for cryptoasset firms) on May 28, 2025. Both contain a crypto roadmap, which indicates potential milestones for a crypto-asset regime.    

The bigger picture

DP25/1 provides the FCA’s proposals, which include:

• Generally, entities operating a trading platform for crypto-assets in the UK, or providing services to UK retail clients, will need to be authorised in the UK. Therefore, these firms will need to consider the authorisation requirements, such as capital requirements, and ensure they have the necessary policies and procedures in place.
• Prohibiting Payment for Order Flow (PFOF) for crypto-asset intermediaries. This refers to a situation where a firm receives payment, remuneration or commission from third parties (including those to which it directs orders for execution) in relation to the execution of client orders.
• Considering whether crypto-specific rules or guidance on retail customers opting up practices are needed.
• Restricting firms from offering crypto-asset lending and borrowing products to retail consumers in their current structure.
• Risk mitigation proposals for crypto-asset lending and borrowing that retail customers can access.
• Restricting the use of credit cards to directly buy crypto-assets, and using a credit line provided by an e-money firm to do so.

Under the FCA’s proposals in CP25/14, qualifying stablecoin issuers will be required to:

• Back qualifying stablecoins with secure, liquid assets in a statutory trust for qualifying stablecoin holders. These backing assets should be held with a third-party custodian who is not in the issuer’s group.
• Offering redemption of qualifying stablecoins in exchange for money to all holders. Payment orders to transfer redeemed funds to qualifying stablecoin holders should be placed at the latest by the end of the next business day following receipt of a redemption request.
• Clearly disclose their policy for redemption and the composition of backing assets to consumers.

Under the FCA’s proposals in CP25/14, qualifying crypto-asset custodians will be required to:

• Segregate client crypto-assets from their own.
• Hold those qualifying crypto-assets on behalf of clients in a trust.
• Have accurate books and records of clients’ crypto-assets holdings.
• Have adequate controls and governance to protect clients’ crypto-assets holdings.

The FCA’s proposals in CP25/15 include:

• A new prudential sourcebook (COREPRU).
• A new sourcebook called CRYPTOPRU, which will set sector-specific requirements for firms undertaking crypto-asset activities.
• Rules around own funds.
• Ongoing permanent minimum requirement (PMR) for firms that issue qualifying stablecoin and firms that safeguard qualifying crypto-assets.
• Fixed overheads requirement (FOR) and its calculation.
• K-factor requirement.
• Details on firms that are both CRPYTOPRU and MIFIDPRU firms and the proposed rules on prudential requirements.
• Liquid assets requirement, which includes basic liquid assets requirement (BLAR) and issuer liquid asset requirement (ILAR).
• Requirements around concentration risk.

Why should you care?

This regulatory influencer will focus on the following points in DP25/1, CP25/14 and CP25/15 and how firms can prepare for any future regulatory regime:

• Restricting firms from offering crypto-asset lending and borrowing products to retail consumers in their current structure.
• Risk mitigation proposals for crypto-asset lending and borrowing that retail customers can access.

In terms of the FCA restricting firms from offering crypto-asset lending and borrowing  products to retail consumers in their current structure, firms should consider appropriate systems and controls for this and, in the event this proposal comes to fruition, how they would adhere to the FCA’s requirements.  

The FCA in its discussion paper has also indicated risk mitigation proposals for crypto-asset lending and borrowing that retail customers can access. Firms should look to review these proposals and provide feedback to the FCA to be involved in shaping any future policy, as well as be prepared to ensure the mitigation measures are reflected in their own risk assessments and any policies/procedures. 

• Restricting the use of credit cards to directly buy crypto-assets, and using a credit line provided by an e-money firm to do so.

The FCA has indicated that it will restrict the use of credit cards to directly buy crypto-assets, and using a credit line provided by an e-money firm to do so. Firms that offer these methods of payment need to ensure that they have the appropriate systems and controls in place should the regulatory regime be established. Crypto-asset firms will also need to review their systems to ensure consumers cannot purchase crypto-assets through the use of credit. Failing to have such systems and controls in place would lead to a breach and would require notification to the FCA, which in turn could lead to a supervisory case arising. The FCA has stated that it expects qualifying stablecoins issued by an FCA-authorised stablecoin issuer would be exempt from potential restrictions, and firms would not be restricted from offering credit options for the purchase of these qualifying stablecoins.

• Offering redemption of qualifying stablecoins in exchange for money to all holders. 

Another of the FCA’s proposals (contained in CP25/14) is for qualifying stablecoin issuers to offer redemption of qualifying stablecoins in exchange for money to all holders and that payment orders to transfer redeemed funds to qualifying stablecoin holders should be placed at the latest by the end of the next business day following receipt of a redemption request. Qualifying stablecoin issuers need to consider how they would implement this and have this process detailed in advance of any authorisation application, including details of any systems and controls involved.  

• Clear disclosure of the policy for redemption and the composition of backing assets to consumers.

Under the FCA’s proposals in CP25/14, qualifying stablecoin issuers will need to clearly disclose their policy for redemption and the composition of backing assets to consumers. These firms will need to ensure that should this regulatory regime come into effect, they have a policy for redemption in place and details of the composition of backing assets. It is plausible that the FCA may provide guidance on the requirements of the policy to qualifying stablecoin issuers, similar to payments and e-money firms, for whom the FCA provides guidance in terms of what the framework contract should contain. Qualifying stablecoin issuers should look out for any guidance from the FCA, such that they can incorporate this into their own documentation. 

• Segregating client crypto-assets from own.
• Having accurate books and records of clients’ crypto-assets holdings.

Qualifying stablecoin issuers will be required to segregate client crypto-assets from their own as part of proposals from the FCA to address risks to consumers and to the financial markets. The FCA highlights three requirements in CP25/14 as part of its proposals:

• Issuers to hold backing assets on behalf of stablecoin holders under a statutory trust, with the issuer as trustee and a fiduciary duty between the issuer and stablecoin holders.
• Promptly segregate backing assets on receipt, and place these with an independent third party not connected with the issuer’s group. The FCA proposes that issuers can only accept money or qualifying stablecoins issued by FCA-authorised firms, in exchange for qualifying stablecoins they issue.
• Carry out reconciliations of backing assets at least daily and to ensure shortfalls are topped up and excesses removed, or that qualifying stablecoins are minted or burned to ensure parity is maintained.

Qualifying stablecoin issuers should consider these three requirements and understand how they would go about implementing them. Furthermore, they would need to ensure that their policies and procedures are aligned with the requirements should they come to fruition. Qualifying stablecoin issuers should look at producing a detailed reconciliation document that outlines the steps they would take, personnel responsible and how they would address any discrepancies, including timings for daily reconciliation. 

Having this in place should ensure qualifying stablecoin issuers can keep relevant “client crypto-assets” segregated from the firms’ own assets. This should aid qualifying stablecoin issuers with maintenance of their ledgers and maintaining accurate books and records of clients’ crypto-assets holdings. This would also inspire consumer confidence. 

• A new prudential sourcebook (COREPRU).
• A new sourcebook called CRYPTOPRU, which will set sector-specific requirements for firms undertaking crypto-asset activities.
• Rules around own funds.

Under the FCA’s proposed prudential requirements, crypto-asset firms will be subject to two prudential sourcebooks: COREPRU; and CRYPTOPRU. Under COREPRU, the FCA states the following will be covered:

• Overall financial adequacy.
• Definition of own funds.
• Own funds requirement (overall calculation).
• Fixed overhead requirement.
• Concentration risk monitoring.
• Basic liquid asset requirement.

Under CRYPTOPRU, the FCA states the following will be covered:

• Permanent minimum requirement.
• K-factor requirement.
• Issuer liquid asset requirement. 

Further items should be expected to be added to both COREPRU and CRYPTOPRU following additional consultations. 

Crypto-asset firms should familiarise themselves with the proposals as they become available to understand how they will impact their business. Crypto-asset firms should also consider providing feedback to the proposals contained in the consultation paper as this is their opportunity to potentially influence the regulatory regime. CP25/15 contains sections on own funds, which include:

• Definition of own funds
• Requirements for the different tiers of capital.
• Requirements around the issuance of Common Equity Tier 1 (CET1) capital.
• Calculation of own funds held to meet own funds requirements.
• Own funds requirements. 

Crypto-asset firms should consider familiarising themselves with these sections to understand the composition of their capital and how they will meet the proposed requirements in advance of any regulatory regime, such that they are prepared for any authorisation application. 

• Ongoing permanent minimum requirement (PMR) for firms that issue qualifying stablecoin and firms that safeguard qualifying crypto-assets.

Another point of consideration based on the FCA’s proposals is the ongoing permanent minimum requirement (PMR), which firms must hold at all times. The FCA is proposing the following for the regulated activities of:

• Issuing qualifying stablecoin - £350,000 (the same as expected of authorised electronic money institutions in the UK).
• Safeguarding of qualifying crypto-assets - £150,000.

Firms should consider how they would meet this requirement and ensure that this is considered as part of financial forecasting for any authorisation application. 

Preparing for the road ahead

The FCA, in both consultation papers, has provided a roadmap which provides an approximate timeline:

• Three consultation papers in Q3 2025: Conduct and firm standards for all Regulated Activities Order (RAO) activities; admissions and disclosures; and market abuse.
• Two consultation papers in Q4 2025 / Q1 2026: Trading platforms, intermediation, lending and staking; and remaining material for prudential sourcebook.
• In 2026, the FCA intends to publish all policy statements containing its finalised rules.
• The FCA also indicates that the gateway for crypto applications and for the regime to go live is expected to be in 2026. 

In addition to the above, to get ahead of any regulatory regime coming into effect, firms should consider preparing wind-down plans, business continuity plans and carrying out appropriate mapping for both operational resilience and Consumer Duty (where firms deal with retail customers). These are key themes for firms who are currently in scope of the regulatory perimeter and these are likely to be key considerations for the FCA when a crypto-asset firm applies for authorisation.

The FCA considers crypto-assets to be high risk. As a result, firms should consider updating their financial crime suite of policies and procedures. Firms should consider reviewing the FCA’s updated financial crime guide and Joint Money Laundering Steering Group’s (JMLSG) guidance and look to incorporate good practice on the key financial crime themes, which include: money laundering, terrorist financing, proliferation financing, bribery, sanctions and fraud. Firms should also consider reviewing their customer risk assessments and ensure these are up to date at the point of an authorisation application. Firms should be able to justify the contents of all risk assessments, including any mitigation measures. 

As part of an authorisation application, crypto-asset firms are also likely to be required to submit applications for senior managers to be approved under the Senior Managers & Certification Regime (SM&CR). Firms should ensure that their senior managers have up to date CVs which demonstrate relevant knowledge, skills and experience. This may include providing a suitability assessment where the firm demonstrates why it feels a senior manager is suitable for the role. Firms should ensure that any proposed senior manager is able to meet the fit and proper requirements as contained in FIT - Fit and Proper Test for Employees and Senior Personnel in the FCA Handbook. 

A key appointment for firms will likely be the money laundering reporting officer (MLRO). Firms should review the guidance provided by the FCA in terms of what they expect to see from a potential candidate. This should aid firms in ensuring the relevant candidate is put forward as part of an authorisation application.  

Firms should consider how they will meet the FCA’s threshold conditions in advance of any authorisation application. The threshold conditions include:

• Location of offices.
• Effective supervision.
• Appropriate resources.
• Suitability.
• Business model. 

A key consideration for the FCA is where a firm’s mind and management is based. The FCA will determine where the actual head office of a firm is based, based on the location of its central management and control, which is the location of:

• The directors and other senior management, who make decisions relating to the firm's central direction, and the material management decisions of the firm on a day-to-day basis.
• The central administrative functions of the firm (for example, central compliance, internal audit).

Firms should review their arrangements to ensure they can satisfy the FCA that the firm’s decision-making takes place in the UK. 

More details on the threshold conditions can be found in COND 2 in the FCA Handbook.  

As per the FCA’s consultation papers, the authority has stated that its proposals are aligned with its statutory objectives: consumer protection; market integrity; and effective competition, and advance its secondary international competitiveness and growth objective, so far as reasonably possible. It remains to be seen how the FCA’s appetite adjusts to crypto-asset firms, as not long ago, many were being rejected from being registered under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). 

Based on what has been discussed in this regulatory influencer, which is only a snippet of some of the key considerations for crypto-assets firms, it is clear that there is a lot of work to be done in order to be prepared for any potential regulatory regime, and therefore being aware and prepared will ensure that firms are ready for it.