FCA Consultation Paper on Approach to Regulating Cryptoasset Activities

CMS | Sam Robinson | Chris Glennie | Yasmin Johal | Rowan Platt | Susann Altkemper | Sam Sykes | Daniel Boden

United Kingdom

On 16 December 2025, the Financial Conduct Authority (“FCA”) published its long awaited consultation paper (CP25/40) on Regulating Cryptoasset Activities , setting out its proposed rules for cryptoasset trading platforms (and their operators), intermediaries, lending and borrowing, staking, and decentralised finance.

These proposals build on the FCA’s discussion paper published in May 2025 on this topic (see our article on this here) and follows His Majesty’s Treasury (“HMT”) draft legislation on cryptoassets (see our summary of this here). The Consultation Paper is part of the FCA’s push to publish its final rules for the cryptoasset industry before the new cryptoasset regulatory regime comes into force on 25 October 2027. The Consultation Paper has been published alongside two other consultation papers, on the proposed requirements for admissions, disclosures and market abuse for cryptoassets (CP25/41), and on prudential requirements for cryptoasset firms (CP25/42).

The FCA is welcoming feedback to the Consultation Paper by 12 February 2026. We summarise below some of the key changes introduced by the Consultation Paper and how they may impact businesses operating within this space.

How will the FCA regulate cryptoasset trading platforms (“CATPs”)?

The FCA is progressing a number of the proposals that had been set out in the Discussion Paper, along with making changes, expansions and removing some of its original proposals. In particular:

• Location, incorporation and authorisation – the FCA is moving forward with its proposals to require an operator of a CATP having a physical presence in the UK to seek authorisation before doing so. Operators of CATPs that are based overseas that wish to provide services to UK consumers must also be UK authorised, which in practice means they will need to establish a presence in the UK through either a UK subsidiary or a combination of a UK subsidiary and a UK branch (for example where the branch is needed to enable seamless access to a global liquidity pool). Overseas firms only serving UK institutional clients may be able to do so without FCA authorisation (subject to a number of requirements being satisfied). The FCA will consult further in Q1 2026 on guidance for overseas cryptoasset firms that wish to seek UK authorisation. Non-UK operators operating in this space should start considering the proposed requirements and how they intend to structure their UK business models.
• Platform access and operation requirements – the FCA is progressing with its proposal to require CATPs ensure fair access to non-discriminatory trading and orderly market access. Each CATP must establish objective criteria for platform access and non-discretionary rules for order execution. Operators will need to consider their existing platform rules and whether their existing frameworks will be sufficient under the new regime or update them as necessary.
• Market making arrangements – the FCA is moving forward with its proposals substantially as consulted on. Operators of CATPs will be required to identify and monitor users who carry out market making strategies on the CATP and must document and disclose incentive schemes or other legal, contractual, or commercial arrangements with such market makers or other liquidity providers. However, the FCA will not impose a blanket requirement to enter into formal contracts with all market makers, as originally expected, which will be a welcomed development for market making arrangements.
• Algorithmic or automated trading – the FCA has decided not to impose the detailed requirements for traditional finance on algorithmic and automated trading in the cryptoasset space. Instead, the FCA will adopt a principles based approach, which means that they will set out high level principles that firms need to comply with, rather than prescriptive rules, providing some flexibility for firms. CATPs must define their own rules on algorithms and monitor compliance with those rules, along with publishing their approach publicly. Operators should start considering the FCA’s proposed principles and if any changes will be needed to the programming of any algorithms.
• Mitigating harm and consumer duty – as expected, operators of CATPs will have responsibilities to mitigate harm where they allow direct retail access. However, the FCA has not yet committed to applying the consumer duty to CATPs at this stage, with a future consultation to follow. Operators should watch this space closely to see the intended proposals from the FCA.
• Principal dealing – the FCA has decided not to prohibit operators of CATPs from trading in a principal capacity on their own platform. Instead, the FCA proposes to allow operators of CATPs to hold principal dealer permissions and conduct matched principal or own account dealing on their own venue, subject to rules to mitigate prudential and execution risks and conflicts of interest. This will be positive news for firm’s that operate multiple business models in the same entity.
• CATPs issuing their own tokens – the FCA has likewise decided not to prohibit operators of CATPs from admitting tokens to trading in which they have an interest. FCA will allow admission of own tokens, provided the operator of the CATP discloses the inherent conflict of interest to users in the disclosure document or on their website, has policies and procedures to mitigate the conflict of interest, and complies with general rules on conflicts of interest. Operators of CATPs should consider what compliance uplifts are needed to allow this, if any.
• CATPs managing market and counterparty risk – as proposed in the Discussion Paper, the FCA will prohibit operators of CATPs from extending credit to counterparties, beyond credit exposure arising from settlement. There must be a legal separation of activities leading to credit exposure and the activity of operating a CATP, but the FCA proposes to allow affiliate entities to offer leverage, subject to any other rules, appropriate permissions, and compliance with prudential rules. In particular, firms should consider whether the ability to offer leverage may trigger additional regulatory permissions.
• Personal account dealing – this was not originally consulted on in the Discussion Paper. However, the personal account dealing rules from traditional finance will be replicated and applied to operators of CATPs.
• Transparency and reporting requirements – the FCA will require CATPs to meet pre-trade and post-trade transparency standards, retain records for 5 years, but will not mandate transaction data reporting to the FCA. However, the FCA will now impose a minimum threshold which is that pre-trade transparency will only apply to firms with an annual revenue of at least £10m, averaged over three years. The FCA also proposes a system of deferrals and waivers as well as specific timeframes for disclosure.
• Settlement – the FCA is progressing with its proposal from the Discussion Paper on settlement, which imposes high level expectations for settlement to be efficient and effective, but gives firms flexibility over whether they internalise or externalise settlement. In either case, they must ensure clients understand the firm’s settlement responsibilities. The FCA intends to consult in 2026 on fuller settlement rules and guidance for CATPs and intermediaries.

How will intermediaries be regulated?

The rules for cryptoasset intermediaries will include firms dealing in qualifying cryptoassets as principal / agent and arranging deals in qualifying cryptoassets.

• Best execution, clients instructions and total consideration – the FCA is progressing with its proposals in relation to “best execution”. Firms will be required to implement procedures for prompt, fair, and expeditious execution of client orders. Best execution will be aligned with traditional finance, applying where a firm owes contractual or agency obligations, and by default to retail clients. For retail clients, the best possible result will be based on total consideration, i.e. the price of the cryptoasset plus the costs involved in execution. The FCA has provided additional guidance on best execution which states that firms must check at least three reliable price sources from UK authorised execution venues, unless not relevant for the specific business model (the FCA gives examples in relation to staking, cryptoasset lending and borrowing and stablecoin). Clients will nevertheless be permitted to give specific instructions, and firms will meet their obligations to take all sufficient steps to obtain the best possible result for a client when it executes an order or a specific aspect of an order following specific instructions from the client about the order or the specific aspect of it. Best execution, whilst a requirement in the traditional finance space, is a new requirement for cryptoasset firms and therefore firms will need to consider how to apply this in their business models.
• Dealing or arranging deals with UK retail clients – as expected, intermediaries serving UK consumers must only execute transactions on UK authorised execution venues. Intermediaries may also only serve retail clients in relation to cryptoassets which have already been admitted to trading on at least one CATP and complies with the relevant disclosure and document requirements. This is subject to an exemption for UK issued qualifying stablecoins and the statutory right of withdrawal (where applicable under the specific circumstances). This will be a significant change to intermediaries, as placing client orders on venues outside of the UK will no longer be permitted.
• Conflicts of interest – the FCA is progressing with its proposals from the Discussion Paper. This includes requiring a functional separation, including separate governance structures, between proprietary trading and client order execution as a minimum. There will also be restriction on payment for order flow, similar to traditional finance. As for operators of CATPs, the personal account dealing rules for traditional finance firms will also apply to cryptoasset intermediaries.
• Transparency requirements – intermediaries that deal as principal will be subject to the same pre-trade and post-trade transparency obligations as CATPs, together with the same £10m revenue threshold, and the same system of deferrals and waivers. They will also be subject to the same record keeping requirements, and the same requirement to report to immediate clients on order execution. Pre-trade transparency obligations will not apply to certain kinds of business model (the FCA gives examples in relation to liquid staking, stablecoin, and cryptoasset lending and borrowing).
• Record keeping and client reporting – intermediaries will be required to record and store the details of their clients’ transactions for a certain period (up to 7 years) and make them available to the FCA when requested. The FCA will also tailor client reporting requirements for intermediaries. The FCA has confirmed that it will not systematically receive or assess Suspicious Transaction and Order Reports or other individual cryptoasset transaction records. Firms will need to implement the appropriate compliance framework to meet this requirement.
• Client categorisation – the FCA has not given further detail on client categorisation in this Consultation Paper. It will consult in 2026 on client categorisation rules, including the definition of an “eligible counterparty” in a cryptoasset context. Firms should watch this space in relation to how their clients will be treated.
• Settlement – this is a new area, which was not discussed in the Discussion Paper. The FCA proposes to apply a similar level of flexibility to intermediaries as for CATPs i.e. intermediaries may decide whether they internalise or externalise settlement but must ensure their clients understand the firm’s settlement responsibilities. Additionally, where intermediaries oversee or arrange settlement, the FCA proposes that they must have adequate and robust arrangements to mitigate against settlement.

Cryptoasset lending and borrowing (“L&B”) activities

Firms that lend and borrow cryptoassets will need to consider their specific business models and determine whether they need to seek regulatory approval to provide such services. While L&B activities will not be new regulated activities, they may fall within the regulated activities of ‘dealing in qualifying cryptoassets as principal’, ‘dealing in qualifying cryptoassets as agent’, and/or ‘arranging deals in qualifying cryptoassets’.

• Retail access to L&B – the FCA has decided not to prohibit firms from giving retail clients access to cryptoasset L&B services, nor to limit L&B services to qualifying stablecoins. Retail access will be permitted subject to new consumer understanding, express prior consent, and operational risk mitigants. This is a welcomed development given how popular L&B is for the business models of a number of firms.
• Consumer understanding – to achieve the objective of consumer understanding, an extensive list of specified information must be provided to retail clients each time they engage with L&B services and before they are bound by any L&B related agreements or services begin, whichever is earlier. Firms must also provide clients with the key terms of the L&B agreement, and secure and record the client’s express prior consent to those key terms.
• Operational risks – to address the operational risks, the FCA has proposed a number of different measures. Firms must not use their own proprietary tokens in connection with L&B services, for example to pay yield, to reduce fees, as collateral, or as the loaned asset – note UK issued qualifying stablecoins do not count as proprietary tokens. Cryptoasset L&B firms must also conduct appropriateness assessments, comply with prudential requirements, and will be subject to specific record keeping requirements.
• Cryptoasset borrowing – the FCA has outlined a number of specific proposals in relation to cryptoasset borrowing aimed at reducing the risk profile of these services. In particular, the FCA will not apply the Consumer Credit Sourcebook to cryptoasset borrowing for retail clients, which will reduce the original compliance burden intended. Firms must obtain the retail client’s consent prior to supplementing the collateral on the retail client’s behalf as originally expected. New detailed proposals regarding collateral have been introduced.

Staking proposals

Qualifying cryptoasset staking is a new regulated activity, which relates to the use of cryptoassets for blockchain validation by ‘locking’ them down for a given period of time, using a smart contract or other software solution (and usually in exchange for a cryptoasset reward).

• Consumer understanding – in the Discussion Paper, the FCA proposed to require firms to provide retail clients, each time they wish to stake their cryptoassets, with information on the staking product and risks. The FCA has now set out the specific information that must be provided. The information must be provided in a durable medium, such as the firm’s website, but the FCA is flexible about the format, to ensure the information is engaging and non duplicative. Firms must also notify retail clients in good time of any material changes. The FCA also proposed in the Discussion Paper that firms would need to secure express prior consent from retail clients and has now clarified the key terms in respect of which this consent must be obtained. These will include information on type, quantity and value of cryptoassets staked, duration, charges/fees/commissions, rewards, restrictions on access to staked cryptoassets, transfer of ownership, and any trust arrangements.
• Technological, cyber, and third party risk – the FCA is moving forward with its proposals in the Discussion Paper to apply operational resilience rules and prudential requirements to staking firms, as explained further in CP25/25 and CP25/42 respectively. However, the FCA has decided not to proceed with its proposal to require automatic compensation for retail losses arising from preventable operational or technological failures.
• FCA handbook requirements – staking firms will also be subject to FCA Handbook requirements applicable to all cryptoasset firms and subject to future consultation on matters including Consumer Duty, redress, and application of the Financial Ombudsman Service. The FCA also proposes to apply detailed record keeping requirements to staking firms, with records to be kept for 5 years.
• Safeguarding – the FCA has confirmed that it intends to apply safeguarding requirements to staking firms, as proposed in the Discussion Paper. The detail will follow in a forthcoming Consultation Paper in 2026.

What about Defi?

The FCA has confirmed its approach from the Discussion Paper, aligned with HMT’s position that truly decentralised arrangements, where no person is undertaking activity by way of business, will remain out of scope. However, where there is an identifiable controlling person carrying on regulated cryptoasset activities, the rules for operators of CATPs, CATPs, intermediaries, L&B and staking will apply as set out above. The FCA will consult further on DeFi specific guidance. This will cover indicators of control and (de-)centralisation, the interaction of the FCA’s rules with DeFi models, and good practices to mitigate DeFi’s heightened risks in relation to operational resilience and financial crime.

Concluding remarks

The FCA’s consultation marks a decisive transition to an operational rulebook calibrated for the unique risks and mechanics of cryptoasset markets. It materially narrows the room for arbitrage by anchoring UK retail intermediation and execution to UK authorised venues, hard wiring best execution and transparency disciplines, and extending familiar conduct controls that apply in traditional finance (personal account dealing, conflicts governance, functional separation) into the business models for UK crypto firms. At the same time, the FCA has deliberately avoided blunt prohibitions that could fracture market structure or stifle innovation, opting instead for a targeted, risk based frameworks.

The window before the regime’s go live is short in regulatory terms. Firms should treat this Consultation Paper as a blueprint to begin mapping obligations to products, legal entities, and controls, and sequencing authorisation and build programmes to help preserve optionality and speed to market. Those that defer are likely to face compressed timelines as the launch date of the new regime approaches.

This article first appeared on Lexology | Source