The FCA consults on setting up a prudential regulatory regime for cryptoasset firms (Jersey, are you watching)

The FCA’s Consultation Paper CP25/15, titled “A prudential regime for cryptoasset firms”, is part of a broader regulatory roadmap for cryptoassets in the UK.

Here's a breakdown of the key points and implications:

Purpose of the Consultation

The FCA aims to:

• Develop a safe, competitive, and sustainable cryptoasset sector.
• Introduce prudential rules and guidance for:
• Issuing qualifying stablecoins.
• Safeguarding qualifying cryptoassets.
• Align cryptoasset firms with standards expected of traditional FSMA-authorised firms.

Scope of the Rules

These rules will apply to:

• Firms issuing fiat-referenced stablecoins in the UK.
• Firms safeguarding cryptoassets (including stablecoins).
• Firms using stablecoins for activities like on/off-ramping.
• Firms with Part 4A permissions for traditional finance products will continue to follow existing Handbook provisions, but the new crypto-specific rules will also apply.

Key Prudential Requirements Proposed

1. Own Funds:
• Definition and composition of capital.
• Minimum capital requirements.
2. Liquidity Requirements:
• Firms must hold sufficient liquid assets to meet obligations.
3. Concentration Risk:
• Rules to prevent overexposure to single counterparties or asset classes.
4. Systems and Controls:
• Operational resilience.
• Financial crime prevention.
• Governance (including SMCR).
5. Consumer Protection:
• Clear disclosures.
• Safeguarding of assets.
• Redemption rights for stablecoins.
6. Draft Handbook Text:
• Proposed additions to the FCA Handbook to codify these rules.

Cost-Benefit Analysis (CBA)

• The FCA has consulted its CBA Panel.
• The regime is designed to be proportionate and competitive internationally (e.g., compared to EU MiCA, Singapore, Hong Kong).
• The aim is to reduce regulatory uncertainty and encourage UK-based crypto operations.

Roadmap and Next Steps

• This CP is published alongside CP25/14, which focuses on stablecoin issuance and custody.
• Further consultations will follow on:
• Trading platforms.
• Staking.
• Lending.
• Conduct standards.
• Market abuse and disclosures.
• Final rules will be published after considering feedback.

Consultation Timeline

• Opened: 28 May 2025
• Closes: 31 July 2025
• Responses can be submitted via FCA’s online form. https://www.fca.org.uk/publications/consultation-papers/cp25-15-prudential-regime-cryptoasset-firms

Here’s a tailored summary of the FCA’s Consultation Paper CP25/15 for three different audiences:

• Board Presentation, Compliance Team Briefing, and Client Communication.

1. Board Presentation Summary

Objective: To align cryptoasset firms with the prudential standards expected of traditional financial institutions under FSMA.

Key Points:

• Applies to firms issuing or safeguarding fiat-referenced stablecoins.
• Firms with Part 4A permissions will be subject to both existing and new rules.
• Focus on capital adequacy, liquidity, governance, and operational resilience.
• Designed to support market integrity, consumer protection, and financial stability.
• Complements broader UK crypto regulatory roadmap.

Strategic Implications:

• Firms must prepare for dual compliance (traditional + crypto rules).
• Opportunity to shape final rules via consultation (closes 31 July 2025).
• Signals FCA’s intent to make the UK a regulated crypto hub.

2. Compliance Team Briefing = Focus: Regulatory Requirements & Operational Impact

Scope:

• Applies to cryptoasset firms involved in issuance, safeguarding, and transaction facilitation of stablecoins.
• New rules will be added to the FCA Handbook.

Key Compliance Areas:

• Own Funds: Minimum capital thresholds and composition.
• Liquidity: Adequate liquid assets to meet obligations.
• Concentration Risk: Limits on exposure to single entities.
• Systems & Controls: Enhanced governance, SMCR, financial crime controls.
• Consumer Protection: Asset safeguarding, redemption rights, disclosures.

Next Steps:

• Conduct gap analysis against proposed prudential standards.
• Engage in consultation response (deadline: 31 July 2025).
• Monitor upcoming consultations on trading, staking, lending, etc.

3. Client Communication Summary - These rules will help protect consumers and strengthen the UK’s crypto market.

Overview: The FCA is proposing new rules to ensure cryptoasset firms meet the same high standards as traditional financial institutions.

What’s Changing?

• Firms dealing with stablecoins must meet new requirements for financial strength, governance, and consumer protection.
• These rules will apply even if firms already have traditional finance permissions.

Why It Matters:

• Builds trust in crypto markets.
• Encourages responsible innovation.
• Positions the UK as a leader in regulated crypto finance.

References

CP25/15: A prudential regime for cryptoasset firms | FCA https://www.fca.org.uk/publications/consultation-papers/cp25-15-prudential-regime-cryptoasset-firms

CP25/15: A prudential regime for cryptoasset firms https://www.fca.org.uk/publication/consultation/cp25-15.pdf

 CP25/14: Stablecoin issuance and cryptoasset custody | FCA https://www.fca.org.uk/publications/consultation-papers/cp25-14-stablecoin-issuance-cryptoasset-custody