Crypto View: December 2025 - bonus edition

With several new FCA consultation papers released just a few days ago, we thought it made sense to put together a bonus edition of Crypto View. In this issue, we take a closer look at what the latest proposals could mean for the crypto market and share our thoughts on how these changes might affect everyone involved.

CP 25/40 and CP 25/41

We have prepared three sets of articles, summarising CP 25/40 and CP 25/41 cover the regulation of cryptoasset activities, admissions and disclosure requirements for cryptoassets, and the market abuse regime for cryptoassets, along with an analysis of what these developments could mean for market participants:

• FCA consults on regulating cryptoasset activities in the UK | Simmons & Simmons
• FCA consults on market abuse regime for cryptoassets | Simmons & Simmons
• FCA consults on admissions & disclosures regime for cryptoassets | Simmons & Simmons

In short, there’s a lot to be positive about in this consultation. The regime is not going to be easy for firms, but we have seen the FCA respond to the feedback from the Discussion Paper earlier this year and change its approach in places.

Some key points are the continued flexibility of approach being taken by the FCA in relation to trading structures for firms dealing with UK retail customers. If you have UK natural person customers, you will need to be authorised (and therefore be UK-based) – we see this as a sensible approach, but the most important point is that the FCA has maintained its position to ensure flexibility and different models to allow retail trading, which don’t involve splitting liquidity by demanding a UK presence for firms’ order books.

CP 25/40 does seem to leave principal dealers in a slight no-man’s-land, and there could be pain points for brokers and intermediaries that may make crypto in the UK expensive for customers – there is still a lot to engage with in the consultation.

Another point where the FCA has listened to feedback from the industry is on lending and borrowing. This will now be permitted for retail - and not just when using qualifying stablecoins. We expect that this will be a welcome early Christmas present for the industry. There are controls on how this can take place, for example mandatory over-collateralisation and negative balance protection, but the direction of travel is positive on this front.

An area that we still lack clarity on is Decentralized Finance (DeFi) – there is a risk that the FCA could seek to regulate intermediaries that offer access into DeFi without being responsible for operation of that solution. This would make access to DeFi very difficult in the UK. This is worth keeping an eye on.

If you want to discuss this further, please do get in touch with George Morris or me.

CP 25/42: Prudential requirements for cryptoasset firms

The FCA also released CP 25/42, introducing a new prudential regime for cryptoasset firms, aiming to strengthen financial resilience and risk management across the sector. The proposals, which build on earlier consultations, set out detailed requirements for capital, liquidity, and risk assessment. Key elements of the regime are summarised below.

COREPRU and CRYPTOPRU

As mentioned in our article about CP 25/15 earlier this year, the FCA’s proposed rules will be split into two new rulebooks: COREPRU, containing core rules (currently for crypto firms but intended for wider application in future), and CRYPTOPRU, containing rules specific to crypto firms.

Own Funds Requirements

The FCA proposes a minimum capital requirement calculated in a relatively formulaic way and based on the highest of:

• Permanent minimum capital requirement: In addition to the previously proposed thresholds (£350,000 for issuing qualifying stablecoins and £150,000 for safeguarding qualifying cryptoassets and relevant specified investment cryptoassets), the FCA now proposes higher minimums for certain activities:
  • £750,000 for dealing in qualifying cryptoassets as principal
  • £150,000 for qualifying cryptoasset staking
  • £150,000 for operating a cryptoasset trading platform
  • £75,000 for arranging deals in qualifying cryptoassets
  • £75,000 for dealing as agent in qualifying cryptoassets
• A fixed overheads requirement: This remains unchanged from CP25/15 and is set at one quarter of the firm’s relevant expenditure from the previous financial year. Certain variable expenses, such as discretionary staff bonuses, may be deducted as specified by the FCA.
• K-Factor requirements: As outlined in CP25/15, this requirement scales according to the level of specific activities undertaken by the firm. In addition to concentration risk (K-CON), the FCA introduced a few K-factors that relate specifically to cryptoasset activities, including for:
  • client cryptoasset orders (K-CCO);
  • cryptoasset trading flow (K-CTF);
  • cryptoassets staked (K-CCS); and
  • K-factors that will apply to cryptoasset firms that undertake proprietary trading, including when trading on behalf of clients.

Note that firms will need to have 9 months of data to complete the K-Factor calculations – while it is suggested that a modified calculation for firms that have less than 9 months’ worth of data for K-SII and K-QCS is possible, as all firms will essentially be new applicants here, it could be the case that firms already operating in the UK would not be able to benefit from this modified calculation. We’ll need to see further detail on this.

Overall risk assessment

The FCA proposes that cryptoasset firms must conduct an ongoing overall risk assessment to identify, monitor, and, where appropriate, mitigate all risks that could cause material harm, including during wind-down. This requirement will be set out in new rules under COREPRU and CRYPTOPRU, with additional provisions for stablecoin issuers. These include:

• Firms must maintain adequate own funds and liquid assets at all times, based on their risk assessment.
• The assessment must cover business model planning, stress testing, recovery and wind-down planning, and be reviewed at least annually or after material changes.
• Senior management is responsible for ensuring the risk assessment is effective, documented, and embedded in the firm’s governance.
• The Overall Financial Adequacy Rule (OFAR) requires firms to hold sufficient financial resources, potentially above minimum regulatory requirements, if their risk profile demands it.
• Firms in groups must assess and, where necessary, mitigate group risks, documenting their assessment individually.

Overall, we would recommend firms engaging early with the prudential regime – it could involve elements of corporate restructuring as well as ensuring that the correct data can be used as a basis for calculation. Please do reach out to Alex Ainley and Malcolm Smith to discuss this further.

European Commission proposes new rules to remove barriers to market integration and foster DLT innovation

On 4 December 2025, the European Commission announced a new package of measures designed to integrate the EU’s financial markets. The measures include a range of points that are significant from a digital assets perspective, several of which could in fact prove transformative. From our initial review, we identified the following key changes:

1. DLT Pilot Regime

The current DLT Pilot Regime permits investment firms and central securities depositories to operate DLT-based trading and settlement systems for shares, bonds and UCITS. Amongst other things, the Commission proposes to:

• Significantly expand the scope of the scheme to (i) allow (MiCAR authorised) CASPs to participate and (ii) cover all MiFID financial instruments.
• Remove all asset-specific caps, and increase the total value of financial instruments that can be traded under the pilot to EUR 100 billion (from EUR 6 billion). Under the new rules, small businesses servicing up to EUR 10 billion of DLT financial instruments would be subject to a simplified regime.
• Allow greater flexibility as regards the roles and permissions associated with DLT infrastructure, e.g. allowing firms to perform individual CSD services (like notary or maintenance) and in some cases to provide services jointly alongside other firms.
• Allow participants to request a broader range of legislative exemptions where justified, in addition to the existing specific exemptions.
• Increase flexibility as regards cash settlements, including stablecoin-related settlements.

2. CSDR

The Commission’s proposals include a raft of changes to CSDR. The most notable are the proposals to allow CSD services to be provided using DLT, and to allow the cash leg of securities transactions to be settled using MiCAR-authorised stablecoins and other tokenised assets (subject to appropriate safeguards). The proposed measures will also update various definitions so to allow the use of DLT.

3. Settlement finality and collateral

The Commission intends to replace the Settlement Finality Directive with a regulation, to ensure greater harmonisation and legal certainty across Member States. Crucially, the regulation updates key definitions, seeking to make them technology neutral and inclusive of DLT systems. The draft text further proposes rules that specify “finality moments” in the context of DLT systems.

The definitions under the Financial Collateral Directive will be revised in tandem, including to clarify that tokenised assets can be used as financial collateral, and so that instructions (or notifications) can be signed with cryptographic keys or digital signatures, supporting automation and blockchain-based workflows.

4. ESMA central supervision for CASPs

Under the proposed measures, all CASPs (and entities whose main activity is the provision of crypto-asset services) would be authorised and directly supervised by ESMA, creating a single point of authorisation and oversight. ESMA’s new role would replace the current authority granted to national competent authorities under MiCAR.

The Commission plans for ESMA to work closely with national regulators by entering into tailored cooperation arrangements. After the regulation takes effect, national regulators would continue to act as supervisory authorities for further 24 months before oversight is transferred to ESMA in full. Existing authorisations granted by national regulators will remain valid.

The Commission’s proposals will be put before the European Parliament and Council for review and negotiation. A relatively long lead-time is expected before they enter force, however. The various proposals also include long-dated transition periods before any of the changes come into effect.

Please do reach out to Oli Ward to discuss this further.