On 16 December 2024 the FCA published its much-anticipated Discussion Paper on (i) cryptoasset admissions and disclosures and (ii) the market abuse regime for cryptoassets (DP24/4). This is the first discussion paper to be published under the FCA’s cryptoasset roadmap (summarised in our previous blog post) which sets out an indicative timeline for developing a comprehensive regulatory framework for cryptoassets. The deadline for feedback on DP24/4 is 14 March 2025.
Background
In October 2023, the previous government published detailed proposals to introduce a financial services regime for cryptoassets. In November 2024 the new government confirmed the previous proposals stand, save for the plan to regulate fiat-referenced stablecoins as a distinct asset class – which has been scrapped, meaning they will now be regulated at the same time as crypto trading, exchange and other activities.
The proposals
DP24/4 focuses on the proposed admissions and disclosures (A&D) regime and the market abuse regime for cryptoassets (MARC).
A&D
The cryptoasset roadmap indicated that the FCA will consult on applying the Consumer Duty to cryptoassets. This will have particular relevance to the A&D regime, as it sets an expectation of how firms should communicate with retail customers. However, in addition to applying the Consumer Duty and the Financial Promotions regime, the FCA proposes to introduce specific disclosure requirements and corresponding liability under the A&D regime.
The proposed regime includes requirements for disclosures by issuers or offerors at the point of admission to trading on a cryptoasset trading platform (CATP) which would align with much of the reformed prospectus regime that is currently under consultation. However, the FCA proposes certain differences to reflect the specific characteristics of cryptoassets.
In summary:
- the person who initiates the application for admission to trading would be responsible for the production and publication of any required admission documents (including if this person is the CATP itself);
- the CATP would undertake due diligence on the issuer, any other persons associated with the offer, and the content of the admission document. The CATP would then publish a summary of this due diligence and decide whether to approve or reject the application; and
- if accepted, the admission documents would be filed on the National Storage Mechanism.
DP24/4 also proposes imposing liability where the information provided falls short of appropriate standards:
- First, the admission document must meet a ‘necessary information test’ (which would be set out in legislation). If the document does not contain sufficient information to allow the consumer to make an informed assessment, the preparer would be held liable for consumer losses; and
- Second, those responsible for preparing the admission document would be responsible for its accuracy, and liable under section 90 of FSMA 2000 where the information is not accurate (see our overview). However, the FCA considers that certain statements could be classified as ‘protected forward-looking statements’ which would require a higher standard in order to establish liability (ie that the author either knew or was reckless as to whether the statement was untrue or misleading).
MARC
The FCA also plans to introduce a market abuse regime, MARC, to prohibit insider dealing and market manipulation. This will be based on the UK Market Abuse Regulation, with some divergences to reflect differences between traditional financial instruments and cryptoassets.
The FCA’s proposed default regulatory approach is that issuers who request admission to a CATP for their cryptoasset will be responsible for publicly disclosing relevant inside information. However, where the issuer of a cryptoasset is not easily identifiable (eg Bitcoin), or where a cryptoasset is admitted without the issuer’s request, the responsibility for disclosing inside information will fall to the person who had sought admission to trading of the cryptoasset (which is likely be a CATP).
The proposed requirement under MARC to disclose inside information will work in conjunction with the A&D regime’s admission document requirements to give investors sufficient information regarding a cryptoasset at the point of admission. The FCA is also considering whether any ongoing disclosures should be required at regular intervals post-admission. These would be comparable to financial reporting requirements under the existing regulatory framework.
DP24/4 also proposes that CATPs and intermediaries should be responsible for implementing systems to detect and disrupt market abuse. Further, it contemplates requiring cross-platform information sharing between CATPs to reduce fraud and thwart abusive market behaviour. DP24/4 acknowledges that industry has expressed concern regarding legal and technical challenges in relation to these proposals, including data privacy, confidentiality, compliance with competition law and ensuring compatibility with forms of data unique to cryptoassets. Although DP24/4 indicates the FCA is not currently proposing to establish a centralised FCA-operated information sharing platform, it notes the FCA is considering various methods for encouraging cross-platform inside information sharing and is open to industry-led solutions.
Next steps and takeaways
Responses to DP24/4 are due by 14 March 2025 and will be considered along with further industry engagement. A consultation paper will be published setting out the FCA’s proposals for its final rules.
While the exact requirements of the future regime remain to be determined, the questions posed in DP24/4 indicate the FCA is conscious of the possible costs to business and impact on competition.
