Introduction
On 28 May 2025, the Financial Conduct Authority (FCA) published a consultation paper on proposed rules for firms that will conduct the proposed new regulated activities of issuing stablecoins or undertaking cryptoasset custody (the Consultation Paper).
Market participants will have until 31 July 2025 to respond to the consultations. The FCA will publish further consultation papers, and in due course, a policy statement with final rules ahead of implementation of the new cryptoassets regime.
In line with the FCA cryptoassets roadmap, the new cryptoassests regime is expected to go live in 2026.
Areas to note
The consultation seeks to balance being pro-growth and innovative on an international level, whilst supporting market confidence, consumer protection and financial crime prevention and focusing on ensuing that stablecoin is a “trusted, money-like instrument”.
The Consultation Paper covers the following topics:
- rules to back stablecoin to protect holders;
- procedures to safeguard cryptoassets;
- redemption standards (requiring redemption at par); and
- disclosure requirements.
The FCA emphasises that stablecoins are to be treated as “money-like”, but distinct from e-money, with a secondary market value and capable of being minted before receipt of token holder funds. A subsequent consultation paper to cover regulatory perimeter issues is promised at a later date.
We see for the first time proposals for the new FCA sourcebook, “CRYPTO”, and stablecoin-specific updates to CASS. Geographically, the draft CRYPTO text looks at the location of the issuer, or any part of the issuance. not the holder. It does not distinguish different classes of holders for the purpose of these rules.
Cryptoasset issuance
Chapter 3 of the Consultation Paper contains the following proposals for stablecoin issuers. It focuses on stablecoin referencing a single fiat currency and asks for input around considerations specific to multi-currency stablecoin.
- Qualifying stablecoins are designed and built with risks addressed: Stablecoin issuers will be required to understand and manage risks associated with the design and build of a qualifying stablecoin before it is issued.
- Qualifying stablecoins to be fully backed at all times: Stablecoin issuers will be required to back their coins with high-quality, liquid assets which should be equal in value to all outstanding stablecoins at all times. The backing pool asset will be required to consist of certain low-risk instruments such as “on demand deposits”, and short-term government debt that have a maturity of one year or less. The rules also permit limited use of longer-term public debt or certain money-market funds. The FCA does not intend to prescribe specific compositions of the backing pool assets, rather it will allow firms to determine their own compositions, based on factors including the redemption modelling they undertake on an ongoing basis. The FCA explains that the purpose of this requirement is to ensure that stablecoins can meet redemption requests from holders and maintain parity with their reference currency.
- Prohibition on sharing interest with Holders: Firms will not be permitted to pass interest earned on the backing pool assets to stablecoin holders.
- Qualifying stablecoin backing assets to be effectively safeguarded: All stablecoin backing pool assets will be required to be segregated immediately and held on trust for the benefit of stablecoin holders. The issuer will act as trustee with a fiduciary duty to holders, and the backing pool assets will be required to be segregated from the issuer’s own funds. Stablecoin issuers will be required to place backing pool assets with third-party custodians who must not be affiliated to the issuer’s group.
- Reconciliation: Firms will be required to implement procedures to reconcile the backing pool assets on a daily basis, correcting any shortfalls or excess in a timely manner (e.g. by topping up backing pool assets or burning surplus tokens) to maintain 1:1 asset backing. Firms will be required to maintain accurate books and records. They must be validated independently at least annually.
The FCA explains that the purpose of the safeguarding and reconciliation requirements is to protect holders funds in the event that the stablecoin issuer fails. In this regard, the rules are similar to the current FCA CASS rules that apply to firms that hold client money in the context of “traditional finance”. - Redemption of qualifying stablecoins to be guaranteed by the issuer at par: Stablecoin holders will be required to have an unconditional right to redeem their stablecoins at par value with the issuer (i.e. this is the value of one unit of the reference currency, multiplied by the number of stablecoins being redeemed, irrespective of the value of the backing assets. The redemption value is not to fluctuate in line with the performance of underlying backing assets). Redemption will be required to be made available to all holders with no minimum redemption thresholds.
Stablecoin issuers will need to implement procedures to ensure that redeemed funds are placed with the holder by the end of the business day following receipt of a valid redemption request. Any fees charged for redemption of the stablecoin must be commensurate with the operational costs incurred for executing the redemption request. In all cases fees must not exceed the value of the stablecoins being redeemed, or pass on costs and losses arising from the sale of assets in the backing...
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