Issued following HM Treasury's publication of draft legislation to establish the UK legal framework for cryptoassets, the FCA's latest discussion paper (DP 25/1) sets out its high-level regulatory proposals at this stage for a "a safe, competitive, and sustainable crypto sector in the UK that enables innovation and is underpinned by market integrity." Proposals are compatible where possible with international standards. Stakeholder feedback will inform the development of concrete rules, consultation on which will follow later in the year. New regulated activities will be created under the framework proposed by HM Treasury (outlined in our briefing, UK cryptoasset regulation: what is the impact of the new draft law?). For each regulated cryptoasset activity, the FCA highlights what it views as the key risks and harms and outlines desired outcomes and planned approach.

Cryptoasset Trading Platforms (CATPs)

The FCA notes that the UK Overseas Persons Exclusion will not operate for CATPs and considers that, in general, an entity operating a trading platform for cryptoassets in the UK, or providing services to UK retail clients, will need to be authorised in the UK to carry out the new regulated activity of “operating a qualifying cryptoasset trading platform”. The DP discusses the narrow conditions under which the FCA might permit authorisation of a UK branch of an offshore CATP and seeks feedback on how to allocate responsibilities and rules between a branch, the offshore CATP and a UK affiliate.

The FCA proposes to subject CATPs to additional rules and obligations in relation to specific types of market participant, namely where there is retail access to the CATP, algorithmic or automated trading and market making activity.

Proposed trading and execution rules will require CATPs to operate non-discriminatory trading systems and will prevent CATP operators engaging in proprietary trading against their customers in a harmful way (including through matched-principal trading). The FCA is interested to receive feedback on how principal trading is used in practice in the sector. The DP also explores how potential conflicts of interests could be addressed including where an entity engages in multiple regulated activities, such as operating a CATP and cryptoasset custody.

The FCA is considering pre- and post-trade transparency and reporting by CATPs and at this stage is not proposing any waivers for pre-trade transparency requirements. Also in the post-trade context, the FCA is considering what requirements should be in place in respect of settlement by CATPs of trades executed on their platform. In connection with this, the FCA seeks feedback on the risks of internal settlement by CATPs.

Intermediaries

HM Treasury's draft legislation includes new regulated activities for intermediaries, i.e. entities dealing in qualifying cryptoassets as principal or agent, or arranging deals in qualifying cryptoassets. The FCA proposes to introduce conduct rules for cryptoasset intermediaries in relation to order handling and execution (including a best execution obligation), conflicts during the execution process (including proposals to prohibit payment for order flow), and pre-/post-trade transparency.

Notably, the FCA considering a requirement that any cryptoasset needs to be admitted to trading on at least one UK authorised CATP before any intermediary can deal in it or arrange deals for UK retail customers.

Given the high-risk nature of cryptoassets, the FCA is considering whether there should be specific client categorisation guidance or rules restricting the ability of retail clients to opt up to professional client status.

The FCA proposes to apply the Consumer Duty to cryptoasset intermediaries and will consult further on this in Q3 2025.

Lending and Borrowing

Operating a cryptoasset lending platform, cryptoasset lending and cryptoasset borrowing are captured under the proposed new regulated activities of "cryptoasset dealing as principal" and "arranging" outlined in HM Treasury's draft framework.  The FCA to restrict firms from offering these products to retail consumers at present, but invites feedback on proposals that might mitigate the risks of these products to an extent that they could be deemed suitable for retail customers. These proposals include applying aspects of consumer credit regulation to cryptoasset borrowing (such as creditworthiness assessments and forbearance), and restricting firms' ability to automatically top up collateral without the customer's express consent.

For both lending and borrowing the FCA is considering requiring appropriateness assessments to be conducted, requiring key features information to provided to the customer on the features and risks of lending and borrowing products, and placing restrictions on firms' use of own platform tokens where there is a conflict of interest.

Another option the FCA is considering is a potential exemption to the restriction where the borrowing or lending product uses qualifying stablecoins (as defined in the draft legislation),

Purchase of cryptoassets by retail investors using credit

The FCA is concerned about the risk of consumers taking on unsustainable debt where they use, for example, a credit card or a credit line from an e-money firm to purchase cryptoassets. As such, the FCA is exploring placing restrictions on firms' ability to accept credit as a means of purchase. It is expected exemptions would apply in respect of qualifying stablecoins.

Staking

The FCA seeks feedback on proposed requirements on regulated cryptoasset staking firms to address technological risks, lack of consumer understanding of the risks involved in staking and safeguarding risks. Proposed requirements could include:

• Making the staking firm liable for financial losses suffered by retail consumers where the firm has inadequately assessed its technological and operational resilience, including third party dependencies.
• Requiring pre-contractual consents to be obtained and Key Features information to be provided on staking products.
• Staking firms would be subject to the FCA's rules on safeguarding of cryptoassets, but FCA is additionally considering requiring staking firms to maintain separate wallets for consumers’ staked cryptoassets, distinct from the firm’s and other consumers’ cryptoassets, as well as requiring firms to conduct regular reconciliations and keep adequate records of staking products.

DeFi

Where any "clear controlling person(s)" is carrying on one of the new cryptoasset regulated activities in a decentralised finance context, the FCA will apply to that person the regulatory rules that apply to that activity. The FCA invites feedback, among other things, on how to assess the degree of centralisation and decentralisation, how decentralised features interact with the regulatory perimeter. The FCA plans to publish guidance to clarify how regulatory obligations will apply in a DeFi context.

Next steps

With the publication of HM Treasury's draft legislation and this latest discussion paper from the FCA, the potential shape of the new UK regime is beginning to become clearer. However, before the UK cryptoasset regime can enter into force (expected end-2026) there is much more to come before firms can have a full understanding of the requirements with which they will need to comply.

HM Treasury expects to finalise its draft legislation by the end of 2025. We can also expect further draft legislation to be published in due course in relation to the admissions and disclosures, and market abuse frameworks.

The FCA will publish further discussion papers and consultations in line with its Roadmap. These include a forthcoming consultation on conduct and firm standards (including the Consumer Duty) for the new regulated activities, a forthcoming consultation on the wider safeguarding regime for in-scope cryptoassets, a consultation on regulation of qualifying stablecoins and a consultation on prudential rules.

Authors: Diego Ballon Ossio, Monica Sah and Sara Evans.