FCA opens discussion on aspects of cryptoassets regime

What does this mean?

In November 2024, the Government announced it will issue legislation to include cryptoassets within the FCA’s regulatory framework, as early as possible in 2025. The approach will closely align with the Government’s 2023 consultation response. The legislation will address fiat-referenced stablecoin activities simultaneously with crypto trading, exchanges, and other related activities.

This DP is the start of a set of regulatory publications. The FCA is due to issue consultation papers (CPs) on stablecoins, custody and prudential in the first half of 2025, followed by CPs on conduct, A&D, MARC, trading platforms, intermediation, lending and staking later in the year or early in 2026. The full framework would then be implemented sometime during 2026.

Admission & disclosures

Two key activities will likely trigger the A&D regime: admitting (or requesting admission) of cryptoassets to trading on a regulated cryptoasset trading platform (CATP) and making a public offer of cryptoassets in the UK.

The Government is expected to introduce legislation which will prohibit public offers of cryptoassets in the UK, unless an exemption applies:

• offers of cryptoassets admitted or to be admitted to trading on a CATP

• cryptoasset offers qualifying for other exemptions and is offered off-platform (e.g. offers made only to qualified investors).

For offers of cryptoassets admitted or to be admitted to trading on a CATP, the following A&D requirements will also apply:

• disclosure documents required

• disclosure documents to be filed on NSM

• CATP must conduct due diligence on issuers and disclosures

• CATP must have a process for rejecting admission to trading

• statutory civil liability applicable to preparers of disclosure documents

• CATPs and issuers may be subject to prudential requirement.

The FCA will also review its financial crime framework in response to any changes to the The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 perimeter and registration requirements introduced by the Government under the new cryptoasset regime. It may consult further if additional changes to its financial crime rules or guidance are deemed necessary.

The Financial Promotions regime applies to disclosure documents (unless qualifying for an exemption under the Financial Promotions Order 2005).

The Consumer Duty applies broadly to authorised persons, including when they make public offers of cryptoassets. Compliance with the Consumer Duty may require disclosures beyond those under A&D.

Market Abuse Regime for Cryptoassets

MARC will be based on parts of the UK Market Abuse Regulation (UK MAR) tailored for cryptoasset activity. The prohibitions will include insider dealing, unlawful disclosure of inside information, and market manipulation, including dissemination of false or misleading information.

The FCA proposes inside information disclosure responsibilities on the issuer or person seeking admission of a cryptoasset, and requirements for issuers or persons seeking admission to disseminate inside information promptly and widely.

Certain practical limitations will prevent simply transferring the existing market abuse regime to cryptoasset markets. Key fundamental differences include:

• highly fragmented markets increase the difficulty of surveillance
• the cross-border element of cryptoassets and its highly mobile nature, means that potentially abusive trading activity can occur on offshore trading platforms
• a lack of clearly identifiable issuers to take on the same disclosure obligations which issuers do under traditional financial regulations
• complications around identifying the ‘market price’ due to the decentralised nature of cryptoasset price formation or the relative lack of established methods for valuing cryptoassets
• an absence of mechanisms to promote and support equal and transparent information for all market participants and consumers
• higher direct participation from retail consumers further complicating the surveillance process.

As a result, the FCA aims to take a pragmatic approach to reduce instances of market abuse; establish a common understanding of unfair, abusive practices with clear understanding of obligations; inside information is fast available and shared widely.

What do firms need to do?

The first crypto DP from the FCA is detailed and granular. Impacted firms should review it in detail to understand the FCA’s travel of direction and expected consultation proposals.

The proposed approach to A&D and MARC, and other upcoming changes, will also result in one-off and ongoing costs to firms, as they make changes to comply with the requirements. Firms should raise any concerns to the FCA early, where they consider any proposals to result in unnecessary  barriers to entry or unduly impact competition.

Existing digital asset firms and prospective new market entrants should begin to assess their current systems, operations and practices early, to identify potential gaps against the upcoming requirements, some of which will become clearer after regulatory consultations. This is particularly important for firms which have a global footprint and may be required to establish a new regulated entity in the UK.

The lack of harmonised global regulatory standards also means that many specific requirements will differ between jurisdictions, for example compared to the frameworks established in the EU, Asia and Middle East. Firms will need to navigate these, to continue to be able to provide services to their customers.

Next steps

The DP closes on 14 March 2025. The FCA will also conduct further industry engagement to determine its next steps and is open to meeting market participants. The FCA will issue further DPs and CPs in 2025, as per its crypto roadmap.