• Cryptoasset trading platforms (CATPs)
• Cryptoasset intermediaries
• Cryptoasset lending and borrowing
• Restricting the use of credit to purchase cryptoassets
• Staking
• Decentralised finance (DeFi)

We outline the key proposals for each of these areas below.

The Discussion Paper does not consider rules for (i) issuing qualifying stablecoins or (ii) safeguarding qualifying cryptoassets and specified investment cryptoassets, each of which will be covered separately in a consultation paper expected before the end of the second quarter this year.

Key proposals

1.    Cryptoasset trading platforms

CATPs are entities that are authorised to operate a qualifying cryptoasset trading platform.

Territorial scope

Entities operating a CATP in the UK will need to be authorised. Entities operating an overseas CATP that serves UK retail customers will need to establish an authorised UK subsidiary. This requirement does not extend to CATPs operated overseas that serve UK professional investors, in which case authorisation will only be required to the extent that a regulated activity is carried on in the UK, a point we discussed in our alert on the draft statutory instrument.

Under the current proposals, the FCA has indicated that it might approve structures where the trading platform has both an authorised UK branch and an authorised UK subsidiary. The UK branch would handle the trading platform’s core matching and settlement activities while the UK subsidiary would be responsible for other customer-facing activities (e.g., e-money issuance and customer on-boarding). Responsibilities between the branch and UK subsidiary would be appropriately allocated.

In addition, the FCA would only authorise a branch where the majority of the overseas firm’s business is non-UK facing and the overseas firm meets the FCA’s fundamental expectations and minimum standards, determined on a case-by-case basis. It will not be possible to set up entities overseas to run what is predominantly a UK business.

The FCA notes that the Treasury has indicated that, given cryptoasset frameworks continue to evolve internationally, the UK’s approach might change in future. The FCA might move to a model where overseas CATPs serving UK retail customers do not require UK authorisation if they are subject to an equivalent regime in their home jurisdiction. The FCA may also permit overseas CATPs to operate through branches rather than through UK subsidiaries in future.

Trading

The FCA also considers the obligations it may impose on CATPs in respect of trading and execution, including:

• Transparency. The FCA will impose pre- and post-trade transparency obligations on CATPs, requiring them to make their trading data publicly available.
• Conflicts of interest. CATPs will need to manage conflicts of interest effectively where their upstream and downstream activities may affect a transaction – for example, if the CATP is also a token issuer.
• Non-discretionary trading. The FCA considers that CATPs should operate their trading systems on a non-discretionary basis. It has proposed a ban on CATPs trading on their own platform in a principal capacity given the potential conflicts of interest that may arise.
• Retail access. As platforms may offer direct access to retail customers, the FCA considers that CATPs should monitor customer usage to ensure compliance with platform and regulatory rules, using participation rights and account suspension as remedies where a breach of the rules occurs.
• Market makers. The FCA is concerned about anti-competitive and collusive business practices and is considering requirements that ensure CATPs identify such practices and require market makers to operate under separate terms and conditions.
• Credit risk. The FCA is proposing that CATPs act as risk-neutral execution venues. Under this model, CATPs would not be permitted to act as clearing houses or directly manage risk exposures between counterparties. Therefore, CATPs would not be permitted to take on any credit risk in respect of their users, e.g., by extending lines of credit. CATPs will be required to clearly inform clients of their responsibility for settling executed transactions. The FCA is also seeking views on how risks to CATPs arising from a client failure to settle can be managed and mitigated.

2.    Cryptoasset intermediaries

Intermediaries include those authorised to deal in qualifying cryptoassets as principal and agent, as well as those authorised to arrange deals in qualifying cryptoassets. The Discussion Paper looks to introduce a number of measures aimed at protecting investors from risks and key harms associated with intermediary activities, drawing heavily on the traditional finance rules that apply under the EU’s Markets in Financial Instruments Directive (MiFID). Proposals are centred around five key areas:

(i) Admission to trading

The FCA requires that a cryptoasset must be admitted to trading on at least one UK-authorised CATP before an intermediary can deal in or arrange deals in the cryptoasset for retail customers.

(ii) Order handling and execution

Intermediaries must implement “prompt, fair and expeditious” processes around the execution of client orders. Best execution rules will apply, and firms will also need to comply with the FCA’s Consumer Duty, which requires firms to deliver good outcomes for retail customers.

(iii) Conflicts of interest during order execution

This will include a requirement for “functional separation” between the principal trading and client order execution operations.

(iv) Pre-trade and post-trade transparency

Where intermediaries execute trades as principal, transaction details must be made publicly available and quotes published pre-trade. This approach resembles the transparency arrangements for liquid securities under MiFID but raises concerns for those parts of the digital assets world that particularly value the privacy of transactions. It also raises particular questions regarding transactions in qualifying cryptoassets.

(v) Client categorisation

The FCA is considering whether clients should be categorised as “retail”, “professional” or “eligible counterparty”, and whether specific rules on retail customer opting-up practices should apply in the crypto context. 

3.    Cryptoasset lending and borrowing

The FCA proposes a separate framework for lending and borrowing cryptoassets due to the unique risks inherent in such activities. The Discussion Paper notes that although current demand for cryptoasset lending and borrowing is low in the UK, the existing models present “risks of significant harm” and different policy approaches should be considered.

Notably, the Discussion Paper considers restricting firms from offering cryptoasset lending and borrowing products to retail clients, citing concerns over consumer understanding given the volatility of the crypto market. Alternatively, the Discussion Paper also considers a number of risk mitigation proposals instead of a blanket prohibition, including:

• Compliance with elements of the FCA’s Consumer Credit sourcebook (CONC), such as conducting creditworthiness assessments.
• A requirement for consent to be sought from retail consumers before automatically topping up their collateral for the first time, and limiting how much the collateral can be automatically topped up over the course of a loan.
• Various measures focusing on improving consumer understanding, including obtaining express consent (and renewed consent following significant changes) from consumers, whereby they acknowledge the risks involved.

4.    Restricting the use of credit to purchase cryptoassets

The FCA is considering introducing rules to restrict consumers from purchasing cryptoassets using credit. Restrictions include limiting the use of credit cards or credit lines provided by e-money firms.

The consideration of such measures, which do not align with traditional financial markets, appears to be largely driven by the volatility of cryptoassets and the risks this may pose to consumers. Notably, the FCA may exempt qualifying stablecoins from these rules.

5.    Staking

Entities regulated to undertake qualifying cryptoasset staking will fall within the regulatory remit of the Draft Order. The Discussion Paper looks to mitigate three risks in particular:

(i) Technological risks posed by third-party validation

Mitigation measures include making firms liable for financial losses suffered by retail consumers if the firm has inadequately assessed risks arising from third-party involvement in staking (e.g., running validator nodes) and requiring firms to implement robust arrangements to ensure they hold enough capital to absorb losses.

(ii) Lack of consumer understanding

Proposals include obtaining explicit consent from consumers and providing them with a key features document containing relevant information on staking products and associated risks.

(iii) Safeguarding staked cryptoassets

Suggestions include maintaining separate wallets for consumers’ staked cryptoassets and keeping accurate records of staked cryptoassets to reduce risks related to hacking and record-keeping/reconciliation errors.

6.    DeFi

DeFi activities will fall within the regulatory perimeter only where there is a clear controlling person carrying on one of the proposed regulated activities. Genuine DeFi activities – those without such central control – will not fall within the perimeter.

The Discussion Paper primarily seeks feedback on methods for assessing the degree of centralisation and decentralisation, the interaction between decentralised features and the regulatory perimeter, and suggested industry practices that may support the implementation of the proposed obligations.

Next steps

The FCA is accepting feedback until 13 June 2025 and the Treasury is seeking technical comments on the Draft Order by 23 May 2025.

In-depth 2025-145