On 28 May 2025, the FCA issued two Consultation Papers focusing on changes to the regulation of firms that issue stablecoins, cryptoasset custodians and firms using stablecoins within wider activities. The timing of the consultation is in line with the FCA Crypto Roadmap issued in November 2024 with a view to create a regulatory regime for cryptoassets and these proposals are subject to these rules being finalised.
This will create a new class of regulated activity under the FCA rules and could have a significant impact on affected firms, depending on their current organisational arrangements and financial position. Those firms issuing stablecoins or responsible for their custody should read the Consultation Papers: CP25/14: Stablecoin issuance and cryptoasset custody, and CP25/15: A prudential regime for cryptoasset firms, carefully to ensure they understand the potential impact on their business.
The underlying theme of the consultations is preventing consumer harm, whilst giving customers confidence in using stablecoins. The proposed rules aim to ensure that regulated stablecoins maintain their value, and customers are given clear information on how the backing assets are managed.
CP25/14 – Requirements for issuing qualifying stablecoins
This Consultation Paper introduces CASS 16 rules, bringing issuers of stablecoins under the existing CASS regime. The paper focusses on:
- 1:1 asset backing
- The requirement to segregate
- 1 day redemption right for client’s funds
- Restrictions on interest passing earned.
The first key takeaway from the proposed new rules is a requirement that backing assets are held under statutory trust for the benefit of clients, which adds legal certainty over the assets in the event of a firm’s failure.
The proposals require the value of the backing assets to the equivalent of the value of stablecoins issued or minted to clients and that firms must appoint an independent third party to safeguard these backing assets. Although the assets would be held independently, the issuing firm would remain legally responsible for them.
There are also proposals for redemptions to be carried out within 1 business day of requests and that any interest earned on the underlying backing asset pool should be retained by the firm, to avoid blurring the legal line between money-like instruments and other investments.
In respect of the appointed custodians, these will be subject to additional regulations, under the heading of CASS 17, which will set out rules governing the following areas:
- Recording ownership
- Segregation of client assets
- Maintaining accurate books and records
- Requirement to carry out reconciliations each business day.
In appointing the independent third party, the issuing firm would be required to demonstrate due diligence prior to appointment as well as ensuring a clear written agreement in place between the parties.
The proposed rules within CASS 16 also formalise requirements around record-keeping and reconciliations, with a focus on ensuring that records are kept that enable firms to distinguish the total amount of backing assets required to be held relative to the number of qualifying stablecoins minted, and conducting daily valuations of the backing asset pool.
Discrepancies identified within these reconciliations should be investigated and resolved by the firm, with excesses being withdrawn by the firm and shortfalls being topped up within 1 business day.
The proposals also refer to a requirement to appoint a CASS oversight officer and to have a client asset audit carried out. The FCA intends to consult further on these in a future consultation paper.
CP25/15 – The proposed prudential rules
Following on from the previous FCA discussion paper, DP23/4, this consultation sets out proposed prudential rules and guidance for the issuing of qualifying stablecoins and safeguarding qualifying cryptoassets under the creation of a new sourcebook, CRYPTOPRU. It notes that there are likely to be scenarios where relevant firms are already under the scope of a prudential sourcebook, such as MIFIDPRU, and will consult on how these sourcebooks will interact with each other for such firms.
The introduction of CRPTOPRU will impose capital and liquidity requirements on relevant firms, along the lines of those applicable to existing MIFIDPRU firms. These will comprise a permanent minimum capital requirement, a fixed overhead requirement and an activity-based K-factor requirement.
Permanent minimum capital requirement (PMR)
The consultation paper sets out that cryptoasset firms should be required to hold a minimum level of own funds and has proposed this at £350,000 for firms issuing qualifying stablecoins and £150,000 for those safeguarding qualifying cryptoassets.
Fixed overhead requirement (FOR)
This represents the minimum level of capital that a CYPTROPRU firm would need to absorb losses if it were to cease trading or exit the market. The proposed level would be equal to one quarter of relevant expenditure in the previous year, calculated with reference to the firm’s most recent audited accounts.
In basic terms this will be total expenditure prior to the distribution of profits with deductions permitted for certain other fully discretionary items, such as staff bonuses.
K-factor requirement (KFR)
This element is based on the firm’s level of activity or exposure and would help address the potential for harm arising from the firm’s operations.
For qualifying stablecoin issuers this is proposed to be 2% of the average stablecoin in issuance. This would be calculated based on the total amount of stablecoins in issuance at the end of each business day for the previous 9 months, deducting the values for the past 3 months and calculating the mean of the daily values for the remaining 6 months. The 2% would then be based on the first business day of each calendar month.
For firms safeguarding qualifying cryptoassets, this is proposed to be 0.04% of the custodian’s average qualifying cryptoassets safeguarded, based on the same average calculation as above.
As well as capital requirements, the proposals will also impose liquidity requirements on CRYPTOPRU firms under the headings of the basic liquid assets requirement (BLAR) and the issuer liquid asset requirement (ILAR), with the former applicable to all CRYPROPRU firms and the latter applicable to those issuing qualifying stablecoins.
The consultation papers states that the FCA will consult on an ICARA type process applicable to these firms in the near future.
Basic liquid assets requirement
The proposals state that CRYPTOPRU firms should hold an amount of liquid assets at least equal to:
- One third of the amount of its fixed overhead requirement; and
- 1.6% of the total amount of any guarantees provided to clients.
Liquid assets are defined as coins and banknotes, short term deposits at a UK bank, claims on or guaranteed by the UK government or Bank of England (ie treasury bonds) or units or shares in a short-term regulated money market fund.
The proposals also state that client money or assets do not meet the definition of a liquid asset for these purposes, nor would any other asset that is subject to a restriction that would prevent it being used in the short term.
Issuer liquid asset requirement
The proposals are linked to those referred to in CP25/14, covered above, where firms are required to maintain a backing of 1:1 of the qualifying stablecoins. This will also be subject to a ‘top up’ should a shortfall be identified as part of the daily reconciliaiton process.
The liquid asset requirement should be able to be met with on demand deposits and such deposits should not be subject to any restrictions for redemption.
In order to calculate the ILAR, the firm should split out the composition of its backing asset pool, between on demand deposits and other assets and apply the notional percentage set out in the proposed CRYPTOPRU 6.1.11R table, which is based on the risk level of the asset and the length of time to maturity.
Next steps
Although the new proposals are only at the consultation stage, they represent a push for a notable change to regulations around firms issuing and acting as custodians for cryptocurrency. We would encourage all impacted firms to review the proposals and consider responding to the consultation which closes on 31 July 2025.
The FCA plans to publish final rules in 2026, following the review of responses from this consultation.
If you have any questions on the Consultation Papers, please reach out to Oliver Hawes or Benny Wong.
