Following HM Treasury’s publication of draft legislation enabling full FSMA-style regulation of activities relating to crypto-assets, the FCA is now seeking views on the regulation of cryptoasset trading platforms (CATPs).
In particular, the FCA is seeking views on intermediaries, staking, lending and borrowing, and decentralised finance. The discussion paper also considers whether restrictions should be applied in relation to using credit to purchase crypto.
The FCA explains its key drivers in CATP regulation as including:
- using the threshold conditions to address risks of unsuitable products, unfair requirements between jurisdictions and poor outcomes for UK investors;
- using systems and execution requirements to address market risks and consumer harm; and
- using transparency and reporting requirements to address competition and market abuse risks.
In principle, an entity operating a trading platform for cryptoassets in the UK or providing services to UK clients will need to be UK authorised. HM Treasury has confirmed that the overseas persons exclusion won’t be available to those conducting crytpo activities. Also, any CATP should be subject to additional requirements when providing retail access, or algorithmic or automated trading and market making activity.
The paper also seeks views on the key risks associated with cryptoasset intermediaries, which it will be addressing in its rules – specifically:
- consumer understanding;
- client categorisation;
- execution quality;
- fragmented liquidity and pricing;
- order handling;
- conflicts of interest;
- systems and controls; and
- opaque off-platform transactions.
It is planning in principle to align its rules with IOSCO standards.
In terms of crypto lending and borrowing, the paper recognises that the market is constantly evolving and, for the present, proposes to ban firms from offering these products to retail consumers in their current structure. It also intends to restrict firms from accepting credit as a means for consumers to buy cryptoassets.
The FCA is also aware of the risks of staking, and plans to make firms responsible for financial losses that retail consumers suffer where the firm has not properly assessed its resilience, will put safeguarding arrangements in place and will require firms to get specific retail consumer consent in relation to staking products.
Finally, the paper looks at DeFi. It notes that activities that are truly decentralised will not be covered by the regime but that where there is a clear controlling person carrying on the activity, then it will be covered. So it plans to make rules and publish guidance to minimise the risk of regulatory arbitrage.
The FCA plans a consultation paper by the end of June on its proposed rules and guidance for issuing a qualifying stablecoin, safeguarding qualifying cryptoassets and specified investment cryptoassets, and on its proposed prudential regulation frameworks. It plans consultation on the wider conduct rules required to support the RAO extension in Q3 2025.
The call for views closes on 13 June 2025.