FCA discussion paper on regulating cryptoasset activities

The UK Financial Conduct Authority (FCA) has published a discussion paper (DP25/1) on proposals for regulating cryptoasset activities, with a new webpage and press release. The FCA is seeking to develop a safe, competitive and sustainable crypto sector in the UK that enables innovation and is underpinned by market integrity, in light of the increasing popularity of cryptoassets with UK consumers. The proposals cover the following areas being brought within the FCA's regulatory remit, in line with the draft statutory instrument (SI) and policy note published previously:

• Cryptoasset trading platform. These are entities that will be authorised to operate a qualifying cryptoasset trading platform. The proposed policy has been informed by the current rules and obligations applied to trading venues in traditional financial markets.
• Intermediaries. While these are not the main channel for buying cryptoassets, a substantial percentage of UK crypto users use them. Proposed rules are in line with international frameworks, with the aim of strengthening the UK's reputation as a credible financial centre aligned with international standards.
• Cryptoasset lending and cryptoasset borrowing. The FCA proposes having specific rules for these business models given their risks and to ensure mitigation and effective oversight, despite both representing a relatively small segment of the UK crypto market.
• Staking. The proposals seek to address technological, consumer-related and safeguarding risks.
• Decentralised finance (DeFi). This is only covered by the regime when it involves cryptoasset regulated activities and (a) clear controlling person(s) carrying on an activity.
• Restricting the use of credit to purchase cryptoassets. The FCA is exploring whether to implement restrictions due to the concern that consumers buying cryptoassets with credit may take on unsustainable debt, particularly if the value of their cryptoasset drops and they were relying on its value to repay. The FCA will potentially exempt qualifying stablecoins issued by an FCA-authorised stablecoin issuer from these restrictions.

The deadline for comments is 13 June. The FCA also intends to publish a consultation paper in Q2 2025, if it proposes to adopt any proposals outlined in this paper, as part of its final rules and will draft appropriate new Handbook rules for consultation. For further information, please see our article and the FCA's indicative roadmap for developing and implementing the new regime.

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