On 2 May 2025, the Financial Conduct Authority (FCA) published a discussion paper on regulating cryptoasset activities, with an accompanying press release detailing the regulator’s vision for the sector. This publication follows HM Treasury’s release of a draft statutory instrument with proposals for UK’s cryptoasset regulatory regime. The discussion paper seeks industry feedback on regulatory approaches for trading platforms, intermediaries, staking services, lending arrangements and decentralised finance protocols.
The discussion paper represents an important element of the FCA’s comprehensive Crypto Roadmap, which outlines a phased approach to cryptoasset regulation from 2020 through to 2026. This roadmap demonstrates the regulator’s methodical approach to bringing cryptoassets within the regulatory perimeter. The publication aligns with the FCA’s strategic commitment to fostering innovation whilst maintaining appropriate consumer protection and market integrity.
Regulatory Developments
Cryptoasset Trading Platforms (CATPs)
The FCA considers requirements for entities operating cryptoasset trading platforms. The proposals include:
- Entities operating a CATP in the UK or serving UK retail clients will need to be authorised in the UK. The discussion paper explores how overseas firms could provide trading services to UK clients through establishing a UK branch if the group also has an authorised UK subsidiary.
- The FCA proposes that CATPs should operate according to non-discretionary rules. This means that the platform treats all orders identically according to pre-determined rules without exercising judgement on matching.
- The discussion paper also considers the risks when a CATP operator deals as principal, proposing that operators should not be allowed to trade in principal capacity on their own platform under any circumstances due to unmanageable conflicts of interest.
- CATPs would need to provide both pre-trade and post-trade transparency to ensure market integrity and fair pricing.
Cryptoasset Intermediaries
The FCA also outlines proposals for regulating entities dealing in qualifying cryptoassets as principal, as agent, or arranging deals in qualifying cryptoassets:
- Intermediaries would be required to implement procedures ensuring fair execution of client orders, with best execution rules.
- Intermediaries would also be subject to transparency requirements to improve price formation and market fairness.
- The FCA is considering whether crypto specific rules on retail customer “opting up” practices are needed to prevent inappropriate categorisation of retail clients as professional.
Cryptoasset Lending and Borrowing
The FCA proposes prohibiting firms from offering cryptoasset lending, borrowing, and complex yield products to retail consumers in their current structure and seeks proposals on potential risk mitigation measures that could eventually make these products appropriate for retail market distribution. These measures include ensuring consumer understanding through explicit consent and appropriateness assessments and restricting the use of platform tokens where conflicts of interest exist.
Other Considerations
Staking arrangements
The FCA’s proposed framework highlights key risk areas associated with staking, including safeguarding risk, and lack of consumer understanding. The proposed framework includes explicit obligations for operators to secure customer consent before staking activities commence and to implement comprehensive recordkeeping and systems maintenance protocols.
Decentralised protocols
While truly decentralised DeFi activities remain outside regulatory scope, services involving identifiable controlling entities or intermediaries would fall within the regime.
Next Steps and Market Implications
The discussion paper is open for comments until 13 June 2025. Following this consultation phase, the FCA intends to publish a consultation paper on the final regime later in 2025. Firms need to consider how these proposals might impact their business models. They will also need to prioritise implementing enhanced governance, risk management and transparency measures.
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.
