UK sets capital, market abuse rules in landmark crypto framework

The UK's Financial Conduct Authority on Tuesday finalized a broad crypto regulatory framework that introduces prudential requirements, market abuse controls and stablecoin standards ahead of a mandatory authorization regime scheduled to begin on Oct. 25, 2027.

The regime sets a common regulatory framework across the full range of regulated cryptoasset activities, applying conduct, operational resilience and consumer protection standards while drawing on existing financial services rules where risks are comparable, the regulator said in an executive summary of the policy package. 

It applies to firms operating crypto trading platforms, dealing and arranging businesses, custodians, stablecoin issuers, lending and borrowing providers, staking firms and certain decentralized finance firms where an identifiable controlling entity exists, the regulator added.

The regime requires UK qualifying cryptoasset trading platforms, or QCATPs, to conduct due diligence, meet admission criteria and publish qualifying cryptoasset disclosure documents for assets admitted to trading. The FCA also removed an exception that previously allowed fungible cryptoassets to be listed without a disclosure document, according to the policy statement.

The market abuse framework introduces rules covering insider trading and market manipulation. The FCA retained an industry-led approach for large QCATP operators while narrowing onchain monitoring obligations for those firms and refining requirements around inside information disclosures and intermediary notifications.

For stablecoin issuers, the rules establish requirements governing reserve backing, safeguarding arrangements, redemptions and customer disclosures. The FCA removed redemption forecasting obligations for backing assets, permitted limited intragroup custody arrangements subject to safeguards and allowed backing pools to hold excess assets of up to 5%.

The prudential framework was also revised following industry feedback. The FCA reduced the K-SII capital coefficient for stablecoin issuance to 1% from 2%.

Under the final framework, eligible cryptoassets admitted to UK qualifying trading platforms will be subject to a single 40% net risk position requirement and a 40% counterparty default volatility adjustment, replacing a previously proposed two-tier classification system for cryptoassets.

Authorization window opens ahead of October 2027 implementation

The FCA said firms can apply for authorization between Sept. 30, 2026, and Feb. 28, 2027, to prepare for the new regime. The regulator is also offering pre-application support meetings beginning in July to help firms develop their applications.

Existing registrations under the Money Laundering Regulations will not convert automatically, and firms operating within the scope of regulated cryptoasset activities must obtain FCA authorization under the new framework, according to the policy documents.

Until the regime takes effect in October 2027, the FCA said its oversight of crypto firms will remain limited to financial promotions and anti-money laundering requirements.

David Geale, the FCA's executive director of payments and digital finance, described the framework as a significant milestone for crypto regulation in the UK, saying the regime aims to provide firms with regulatory certainty while maintaining scope for innovation. He added that consumers would benefit from standards aligned more closely with those applied to other financial services providers, while noting that investment risks in cryptoassets remain.