On 28 May 2025, the Financial Conduct Authority (FCA), published two consultation papers that mark a significant milestone in UK’s journey towards comprehensive cryptoasset regulation. The first consultation paper (CP25/14) addresses stablecoin issuance and cryptoasset custody, whilst the second, (CP25/15) establishes a prudential regime for cryptoasset firms. This follows HM Treasury’s earlier draft statutory instrument outlining the UK financial services regulatory regime for cryptoassets.
Stablecoin Issuance and Cryptoasset Custody
The first consultation paper sets out proposed rules and guidance for issuing a qualifying stablecoin and safeguarding qualifying cryptoassets. Under the new regime, qualifying stablecoin issuers and cryptoasset custodians will need to be authorised by the FCA and once authorised, be subject to ongoing supervision.
Scope and Requirements for Qualifying Stablecoin Issuers
The FCA has clarified how firms will be affected by the scope of the HM Treasury legislation and the proposed FCA rules:
- Custody services: Any firm providing custody services of a qualifying cryptoasset in the UK or to UK consumers will be in scope of the custody regime.
- Stablecoin issuance: Any firm issuing a qualifying stablecoin from an establishment in the UK in any fiat currency will be in scope of the HM Treasury legislation and subject to the FCA issuance rules.
Certain activities remain out of scope, including provision of self-custody wallets and issuing overseas stablecoins outside of the UK.
Requirements for Qualifying Stablecoin Issuers
The FCA intends to regulate qualifying stablecoins as money-like instruments rather than investment products. Qualifying stablecoin issuers will be required to comply with several key obligations:
Backing Requirements:
- Issuers must back qualifying stablecoins with secure, liquid assets held in a statutory trust for the benefit of stablecoin holders;
- Backing assets must be held with third-party custodians unconnected to the issuer’s group;
- Issuers must maintain core backing assets (short-term deposits and government debt instruments maturing within one year); and
- Meet a mandatory on-demand deposit requirement of at least 5% of the backing pool.
Redemption Requirements
Issuers of qualifying stablecoin must also:
- Offer redemption of qualifying stablecoins in exchange for money to all holders;
- Place payment orders to transfer redeemed funds by the end of the next business day following receipt of a redemption request;
- Provide redemption at par value regardless of backing asset performance; and
- Issuers cannot pass interest earned on backing assets to qualifying stablecoin holders.
Scope and Requirements for Qualifying Cryptoasset Custodians
The custody framework applies to any firm providing custody services for qualifying cryptoassets in the UK or to UK consumers, regardless of where the firm is located. HM Treasury has proposed a definition of safeguarding that captures control of cryptoassets on behalf of another, including:
- Holding or storing means of access (including private cryptographic keys); and
- Appointing others to hold or store means of access to cryptoassets.
Qualifying cryptoasset custodians will be required to:
- Segregate client cryptoassets from their own;
- Hold qualifying cryptoassets on behalf of clients in non-statutory trusts;
- Maintain accurate books and records of clients’ cryptoasset holdings independently of blockchain records; and
- Implement adequate controls and governance to protect clients’ cryptoasset holdings.
Scope and Application
The prudential regime applies to all firms undertaking the regulated activities of issuing qualifying stablecoins and safeguarding qualifying cryptoassets. The framework introduces specific requirements for own funds, liquidity, and concentration risk management, tailored to the unique risks posed by cryptoasset activities.
Implications for Industry Stakeholders
Both consultation papers remain open for comments until 31 July 2025, with final rules expected in 2026. These proposals represent both opportunities and challenges for cryptoasset firms operating in or seeking to enter the UK market. Under the new regime, qualifying stablecoin issuers established in the UK and firms providing custody of qualifying cryptoassets in the UK or to UK consumers will need to be authorised by the FCA. Firms must carefully assess whether their activities fall within scope of the new regulated activities and prepare for authorisation where necessary.
About LawBEAM
LawBEAM’s leading crypto team has extensive experience helping firms navigate complex legal and regulatory change. We represent UK and international crypto firms and advise on legal and regulatory strategy that positions our clients for success in international markets. Please contact our team to discuss how we can support your legal and regulatory needs. We note that global regulatory regimes for cryptoasset activities are developing quickly and will continue to monitor the development of cryptoasset regimes around the world.
