On 29 April 2025, HM Treasury published a draft statutory instrument in near-final form which will introduce a regulatory regime for cryptoassets (as covered in our client briefing here). Following that long-awaited announcement, the FCA published a related discussion paper on 2 May 2025 (the DP) which outlines its proposed approach for regulating certain cryptoasset activities.
The DP specifically covers: (1) cryptoasset trading platforms; (2) intermediation in the context of cryptoasset activities; (3) cryptoasset lending and borrowing; (4) cryptoasset staking; (5) restricting the use of credit to purchase cryptoassets; and (6) decentralised finance.
Those readers who manage to get to the conclusion section of the DP will note that there remains a somewhat uneasy tension between the competing demands being placed on the FCA of protecting consumers whilst at the same time encouraging growth and competitiveness. On the one hand, the FCA makes clear its position that it continues to view cryptoassets as high-risk, speculative investments and warns that consumers should still expect to lose all their money if they buy them. On the other, it seeks through the proposals in the DP to achieve “an appropriate degree of consumer protection, enhance market integrity, support effective competition whilst facilitating international competitiveness and encouraging growth as far as reasonable possible”.
It is a difficult circle to square and there will no doubt be a range of views on the current proposals from market participants, who have until 13 June 2025 to provide feedback on the proposals set out in the DP.
We have set out some of our key takeaways below.
Key Takeaways
1. The FCA’s view is that overseas cryptoasset trading platforms (CATPs) operating platforms or serving retail clients in the UK should generally be authorised in the UK. One potentially acceptable approach would be for overseas CATP operators to have a UK-authorised branch to handle core regulated activities and also a UK subsidiary to handle various client-facing activities.
2. The FCA expects functional separation between the principal trading and client order execution operations of cryptoasset firms, specifically in the context of intermediaries.
3. The FCA’s proposal is to restrict firms from offering cryptoasset lending and borrowing products in their current structure to retail consumers in the UK. However, the FCA will consider whether any risk mitigation proposals could effectively reduce the risk profile of these products to the extent that they may be appropriate for UK retail customers (e.g. requiring firms to conduct an appropriateness assessment of their consumers' knowledge and experience and providing a key features document outlining relevant risks to the consumer). The FCA does not propose to restrict institutional access to cryptoasset lending and borrowing products.
4. The FCA is exploring whether it would be appropriate to restrict firms from accepting credit as a means for consumers to buy cryptoassets. A range of potential restrictions are set out in the DP (e.g. restricting the use of credit cards to directly buy cryptoassets). However, the FCA clarified that qualifying stablecoins issued by an FCA authorised stablecoin issuer will likely be exempt from any potential restrictions, and firms would not be restricted from offering credit options for the purchase of these qualifying stablecoins.
5. The DP sets out proposals intended to mitigate three key risks related to staking: (1) technological risks; (2) consumer understanding risks; and (3) safeguarding risks.
6. The FCA has proposed that truly decentralised finance (DeFi) activities will not be covered by the future regime. However, when a DeFi activity involves a proposed regulated activity and there is a clear controlling person carrying on that activity, the activity would fall within the regulatory perimeter.