The FCA published two consultations on 28 May 2025 advancing the proposed regulatory framework for cryptoasset firms.
The first consultation covers the regulation of fiat-backed stablecoin issuance and cryptoasset custody. The second consultation outlines a proposed prudential regime for crypto firms.
The consultations close on 31 July 2025 and will be followed by further consultations throughout 2025 and 2026, as per the FCA’s crypto roadmap.
In this article
What does this mean?
Stablecoin issuance
The FCA proposes a new regulatory framework for UK-established firms issuing fiat-backed stablecoins to UK retail consumers. Issuers would require FCA authorisation, and separate permissions if also issuing e-money, as the two are treated distinctly.
Firms would be expected to assess and manage risks linked to the stablecoin’s design, including governance, technology and token mechanics. Stablecoins must be fully backed at all times by high-quality, liquid assets denominated in the same fiat currency, held with regulated custodians and segregated from the issuer’s own funds. While the FCA would not prescribe an asset list, it proposes composition rules and invites views on limited foreign currency use. Interest on backing assets would not be passed to holders.
Backing assets would need to be held on statutory trust for token holders, segregated on receipt and reconciled daily. Shortfalls would need to be topped up or corrected through minting or burning. Only funds or tokens from FCA-authorised firms could be accepted in exchange.
Redemption must be available at par value to all holders with no minimum threshold. Funds would need to be paid by the next business day, and fees limited to operational costs. Issuers would remain responsible for outsourced arrangements and required to publish quarterly disclosures on supply, backing assets, redemption and key operations.
These proposals apply to single-fiat stablecoins. The FCA is seeking feedback on whether a different regime is needed for multi-currency stablecoins. Where stablecoin arrangements have systemic implications, additional requirements may apply under the Bank of England supervision.
Cryptoasset custody
The FCA also proposes a strengthened safeguarding regime for cryptoasset custodians. Firms would need to segregate client assets from their own and hold them in non-statutory trusts to protect client rights in insolvency. Custodians could use either individual or omnibus wallets, provided records clearly identify client entitlements.
Custodians would be required to maintain accurate, client-specific records that are independent of blockchain data, covering asset type, amount, wallet location and claims. Daily reconciliations would compare records with actual holdings and third-party positions. If a shortfall arises and liability is unclear, firms must notify the FCA and clients.
Where clients consent to asset reuse (for example, in staking or lending), the FCA proposes those assets would not be held in trust. Further consultation on this point is planned in the context of vertically integrated models.
Custodians would need to maintain secure private key management, with full records and backup procedures. When appointing third parties, firms must ensure assets remain clearly identified as client property and that the third party acknowledges trust status and waives any right of set-off.
The FCA proposes requiring regular client disclosures, including wallet structure, assets held in trust, and any changes. Firms would also need to appoint a CASS oversight officer, complete annual custody audits, and submit a new client asset return, modelled on CMAR.
Where firms hold client fiat (for example, during crypto-fiat conversion), the FCA expects the existing CASS 7 rules on client money to apply.
Prudential regime for cryptoasset firms
The FCA proposes a new prudential regime for CRYPTOPRU-authorised cryptoasset firms, aligned with MIFIDPRU but tailored to crypto-specific risks. The proposed rules will be set out in COREPRU 3, with further group-level proposals to follow in CP2.
| Area consulted | This consultation | Upcoming consultation |
|---|---|---|
| Overall Financial Adequacy | ✔ | |
| Requirements for cryptoasset firm groups | ✔ | |
| Definition of Own Funds | ✔ | |
| Own funds requirement | ✔ | |
| Permanent minimum requirement (stablecoin and custody) | ✔ | |
| Permanent minimum requirement (other) | ✔ | |
| Fixed overhead requirement | ✔ | |
| K-factor requirements (stablecoin and custody) | ✔ | |
| K-factor requirements (other) | ✔ | |
| Concentration risk requirements | ✔ | ✔ |
| Basic liquid asset requirement | ✔ | |
| Issuer liquid asset requirement | ✔ | |
| Internal Capital Adequacy and Risk Assessment | ✔ | |
| Public disclosure of prudential information | ✔ |
Capital structure and own funds
Own funds would consist of three tiers, consistently with existing prudential rules: CET1 (e.g. fully paid-up shares and retained earnings), AT1 (loss-absorbing perpetual instruments), and T2 (subordinated debt with a minimum five-year maturity). The FCA proposes mandatory deductions from own funds, including intangible assets, deferred tax, certain holdings, and cryptoassets issued by the firm or its connected parties. Regulated stablecoins would not be deducted.
AT1 instruments must convert to CET1 or be written down if CET1 falls below 64 percent of the requirement. T2 capital must be amortised in the final five years. Firms must obtain permission to issue CET1 instruments unless previously approved and materially unchanged. Interim profits can be included if independently verified.
Firms would need to hold at least 56 percent of total capital in CET1, 75 percent in CET1 and AT1 combined, and up to 100 percent across all tiers.
Own Funds Requirement (OFR)
Firms would be required to meet the highest of:
- a PMR (£350,000 for stablecoin issuers, £150,000 for custodians),
- a FOR (one quarter of relevant annual expenditure), or
- a KFR, which reflects operational risk.
K-SII (2% of average stablecoins in circulation) and K-QCS (0.04% of safeguarded cryptoassets) would apply to issuers and custodians respectively, only where they exceed PMR and FOR. The ICARA process may impose higher requirements based on firm-specific risks. Where firms are subject to both CRYPTOPRU and MIFIDPRU, the highest PMR would apply, FOR would align, and K-factors would be cumulative.
Liquidity requirements
CRYPTOPRU firms would need to meet a BLAR equal to one third of their fixed overheads requirement, plus 1.6% of any guarantees. This would ensure firms can meet liabilities for at least one month during a wind-down. Acceptable assets include cash, UK government debt, and regulated money market funds, mostly held in sterling. A portion can be held in foreign currencies if expenses are also in those currencies.
Stablecoin issuers would be subject to an additional ILAR, requiring sufficient on-demand deposits to cover shortfalls from price volatility in non-cash backing assets. Charges are applied to each asset in the backing pool based on maturity, issuer, and coupon. The ILAR must be met in the stablecoin’s reference currency. A 5% charge would apply where firms cannot look through pooled assets like money market funds. No capital charge for backing asset price risk is proposed, but this may be assessed under ICARA in future.
Concentration risk
All CRYPTOPRU firms would be required to monitor and manage concentration risk. This includes exposures to counterparties, asset types, client relationships, and the location of client funds or the firm’s own deposits. For stablecoin issuers, close attention must be paid to the composition of the backing pool. Firms must define material concentration levels, set risk tolerances, and take action where concentrations exceed thresholds. This may include diversifying counterparties or spreading cash across multiple banks.
What do firms need to do?
Challenge commercial models to reflect how capital, liquidity and redemption rules will affect commercial viability.
Assess whether custody and wallet infrastructure can meet new standards for segregation, traceability and trust.
Engage legal, risk and treasury teams early to prepare for structural and operational changes that require long lead times.
Firms should look beyond compliance checklists and focus on how these proposals will reshape commercial viability.
For stablecoin issuers, the relationship between redemption timing, liquidity buffers, and asset yield will directly affect business models. Custodians need to assess whether their current wallet structures and technology can support the required level of traceability, trust arrangements, and recordkeeping. Multi-service crypto firms should prepare for potential supervisory pressure to separate functions operationally, even if not legally required.
On the prudential side, firms should consider whether their capital structure aligns with the proposed tier definitions, especially for CET1, and whether they can realistically hold the required liquidity across multiple currencies.
Firms also need to assess their overall risk management frameworks to provide a strong basis for ICARA’s and to meet requirements in relation to concentration risk management.
Firms should not wait for final rules to begin involving legal, risk, and treasury teams, as many of the changes will require long lead times to implement.
“The scale of the prudential requirements, whilst broadly consistent with traditional finance, will create challenges for stablecoin issuers and custodians of cryptoassets with a 10-20bp and 2-4bp effective capital cost for stablecoin issuers and custodians respectively. Planning for this and additional requirements under the ICARA process requires firms not only to perform impact analysis, but also review the full extent of their risk management frameworks."
James Moseley
Partner, PwC UK Digital Assets Lead
Next steps
The DP closes on 31 July 2025 and will be followed by regulatory consultations throughout 2025 and 2026, as per the FCA’s crypto roadmap.
Contacts
James Moseley
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