FCA consults on regulating cryptoasset activities in the UK

CP 25/40: Regulating Cryptoasset Activities

The FCA’s Consultation Paper 25/40 (CP 25/40) sets out detailed proposals for regulating cryptoasset activities in the UK, following the draft Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2025 (the Cryptoasset Regulations) and DP 25/1 earlier this year, which we have shared our thoughts on here.

The FCA has responded to industry feedback by relaxing some earlier restrictions, introducing more flexible, principles-based requirements, and providing targeted exemptions and transitional measures. However, the new framework will require firms to make substantial operational and compliance adjustments, particularly in areas such as execution venues, transparency, and client reporting.

Below are the main developments and their implications for market participants:

Cryptoasset Trading Platforms (CATPs)

• Territoriality: FCA sets out that any crypto trading platform serving UK consumers must be authorised by the FCA and have a UK presence. If a firm only deals with UK institutional clients, it may not need UK authorisation. However, the consultation paper formalises the requirement that UK retail customers must always have a relationship with a UK legal entity, ensuring stronger consumer protection and regulatory recourse. The FCA also maintained its proposal in DP 25/1 to allow UK CATP operators to combine a UK legal entity presence with UK authorisation of an overseas CATP via a UK branch. The FCA intends to consult on a separate guidance for international cryptoasset firms seeking UK authorisation in Q1 2026.
• Algorithmic and automated trading: The FCA is adopting a principles‑based approach rather than importing the highly prescriptive MiFID algorithmic trading regime. CATPs are required to set and publicly disclose their own rules and controls, monitor activity for compliance and market abuse, and ensure transparency about the use and risks of algorithms on their platforms. This shift recognises the unique nature of the crypto market, particularly the widespread use of retail trading algorithms or trading bots, and helps keep the UK an attractive and accessible market for crypto trading. While this offers CATPs greater flexibility than traditional venues, platforms with significant high-frequency or bot-driven trading may need to enhance their monitoring and disclosure frameworks, and smaller CATPs may need to invest in new technology and governance to meet these standards.
• Principal trading rules. Moving away from its earlier, more restrictive stance, the FCA will now allow certain principal trading activities and group affiliate trading on CATPs, provided robust controls are in place to manage conflicts of interest and financial risks. This alignment with the rules for traditional trading venues (MTFs) gives firms greater flexibility in structuring their trading operations and expanding their service offerings. This is a meaningful relaxation compared with earlier proposals.
• Token issuance / admission to trading: The FCA has decided not to ban UK CATPs from issuing their own tokens or admitting tokens in which they have a financial interest. Instead, CATPs will be required to clearly disclose any conflicts of interest to users and implement robust policies and procedures to manage and mitigate these risks. This will give firms greater flexibility to innovate and respond to market opportunities.
• Others: The FCA is moving forward with proposals to restrict intermediaries to dealing or arranging deals in cryptoassets only for those admitted to trading on a UK CATP when serving UK retail customers. Alongside this, the FCA is considering additional responsibilities for UK CATP operators to help mitigate risks associated with direct retail access. Further details on these requirements, including the Admission and Disclosure (A&D) regime, are provided in CP25/41, with more information on the application of the Consumer Duty to follow in a future consultation paper.

Cryptoasset Intermediaries

• Best execution: The FCA is maintaining the approach outlined in DP25/1, requiring firms to meet best execution standards similar to those under COBS 11.2A whenever executing orders under a contractual or agency relationship—this applies by default to all retail clients. For retail orders, firms must prioritise total consideration to ensure strong consumer protection.
• Execution venues: Consistent with DP25/1, the FCA has confirmed that all orders for UK retail clients must be executed exclusively on UK-authorised trading venues. Firms acting as principal for UK retail or elective professional clients are also prohibited from systematically sourcing liquidity from non-UK-authorised affiliated platforms. While these requirements may require operational changes, the FCA has introduced targeted exemptions and transitional arrangements to support a smooth transition for firms and their clients. This is a major structural shift; firms that currently rely on offshore exchanges for liquidity will need to re route order flow to UK authorised venues, potentially reducing liquidity depth and increasing spreads.
• Admission to trading: Before any intermediary can offer services to UK retail customers for a cryptoasset, the asset must be admitted to trading on at least one UK-authorised CATP and have an A&D-compliant qualifying cryptoasset disclosure document (QCDD) available. It is prudent, therefore, for intermediaries to ensure all listed assets available to UK retail customers meet these requirements to be compliant. Where sufficient disclosure or issuer cooperation is not available, some tokens may need to be delisted for UK retail clients. This may result in a narrower product range and could increase due diligence and documentation costs for firms.
• Settlement: The FCA is proposing a new, flexible approach allowing firms to choose between internal or external settlement, as long as clients are clearly informed of the firm’s settlement responsibilities. Intermediaries arranging settlement must have robust, documented risk controls in place and publish these arrangements. The FCA will consult further on the ‘temporary settlement’ exclusion and broader settlement rules in 2026.

Both CATPs and Intermediaries

The FCA introduced a new section that applies to both CATPs and intermediaries.

• Pre- and post- trade transparency: The FCA’s revised transparency framework for UK CATPs and intermediaries is more proportionate and better aligned with client needs and market dynamics. Pre trade transparency will apply primarily to larger firms with annual revenues above £10 million (measured on a three year rolling average), while smaller firms and certain activities—such as the issuance or redemption of liquid staking or wrapped tokens, the exchange of UK issued qualifying stablecoins, and crypto transactions undertaken solely for lending or borrowing—are exempt. The framework also introduces waivers and deferrals for large or sensitive orders to help preserve market liquidity and protect client interests. Post trade transparency requirements continue to apply to all UK CATP operators and to intermediaries acting as principal.
• Client reporting: The client‑reporting obligations proposed in CP25/40 would introduce a materially more stringent standard than those currently applied in traditional financial markets. CP25/40 would require cryptoasset firms to provide execution details to clients no later than the end of the day on which the order was executed (T+0), unless the client opts out. By contrast, COBS 16A.3.1R only requires firms to send a trade confirmation as soon as possible and no later than the first business day after execution (T+1). FCA’s proposal therefore accelerates the reporting timeline and imposes a more demanding operational requirement than the current MiFID‑derived framework.

Cryptoasset Lending and Borrowing

• Retail access to lending and borrowing: The FCA has reversed its initial proposal to prohibit crypto lending and borrowing for retail consumers and will now permit retail access subject to strict safeguards. Firms must provide clear disclosures each time a retail client enters into a lending or borrowing arrangement, obtain express consent to key terms on every transaction. The FCA also proposes that COBS 10 obligations should apply, where firms will be required to assess whether services are appropriate for a client – this will be consulted in early 2026.
• Use of proprietary tokens: Firms are completely prohibited, rather than restricted as previously proposed, from using their own proprietary tokens within lending and borrowing services due to heightened risks of conflicts of interest and price manipulation. Platforms that rely on native tokens for collateral, incentives, or liquidity will need to restructure their lending models.
• Liquidity and Counterparty Risk: The FCA ultimately rejected allowing retail lending and borrowing using qualifying stablecoins and instead is consulting on prudential requirements requiring firms to hold minimum capital based on loan size, counterparty type, and collateral quality, with additional rules for asset re‑use. Firms must also conduct an Overall Risk Assessment to ensure adequate financial resources and orderly wind‑down planning.
• Margin call and liquidation: The FCA will require firms to obtain express consent before applying automatic collateral top ups, cap top ups at 50% of initial collateral, mandate over collateralisation, and set clear loan-to-value (LTV) ratio, margin call, and liquidation limits. Retail clients can choose their own limits within firm set parameters, and negative balance protection will ensure they cannot lose more than their posted collateral. To meet these standards, firms will need to strengthen their risk management and capital reserves, and may need to adjust or limit high-leverage products.
• Recordkeeping: Firms offering lending and borrowing services will be subject to enhanced recordkeeping obligations designed to supplement the existing framework.

Staking

• Information and Consent Requirements: The FCA will require regulated staking firms to provide retail clients with clear, upfront information about the firm, its staking services, and associated risks each time a client wishes to stake cryptoassets. Firms must also obtain the client’s express prior consent to key terms and must notify clients in advance of any material changes. These requirements aim to strengthen retail understanding and ensure informed decision making, but do not apply to non retail clients.
• Operational resilience: Regulated staking firms must comply with the FCA’s operational resilience framework, including SYSC requirements on risk management, outsourcing, and business continuity. This may require firms to enhance governance structures, implement advanced monitoring tools, and develop robust incident-response capabilities.
• Retail compensation: The FCA will not require regulated staking firms to automatically compensate retail clients for losses from operational or technological failures, as these risks are considered low. This approach is favourable for firms, as it avoids a costly, industry-wide compensation scheme and limits liability to failures within their control. Retail clients remain protected by existing complaints and enforcement mechanisms.

DeFi

The FCA has confirmed that DeFi activities with an identifiable controlling entity will be subject to the same regulatory requirements as centralised cryptoasset firms, reflecting the principle of “same risk, same regulatory outcome.” Truly decentralised activities, where no controlling person exists, will remain outside the regulatory perimeter, as proposed in DP 25/1. The FCA recognises that DeFi presents unique risks, such as smart contract vulnerabilities and financial crime, and will consult separately on guidance to clarify how degrees of decentralisation and control are assessed, and to provide examples of good practice for risk mitigation.

Next steps

The FCA is inviting feedback on these proposals until 12 February 2026. Following the consultation, the FCA will review responses and publish finalised rules in a series of Policy Statements later in 2026, as set out in the Crypto Roadmap. Firms should begin assessing the impact of these changes on their operations and compliance frameworks now, to ensure a smooth transition and continued access to the UK market.