Introduction
On 28 May 2025, the Financial Conduct Authority (FCA) published a second consultation paper (the Consultation Paper) on proposed prudential rules for qualifying stablecoin issuers (Issuers) and qualifying cryptoasset custodians (Custodians).
The structure and nature of the proposed prudential rules draw heavily on the existing regulatory capital framework for financial services firms that operate in traditional financial markets with rules on minimum capital, liquidity, risk management controls, concentration risk, and in due course, Internal Capital Adequacy and Risk Assessments (ICARA) and reporting.
Prudential Regulation
The FCA intends to establish a tailored prudential regime, which will require cryptoasset firms to maintain financial resources that are adequate in both amount and quality for the business it undertakes, at all times.
The new rules will be set out in a new COREPRU module in the FCA’s integrated prudential sourcebook, which will include the baseline rules applicable to firms across sectors. The FCA also proposes to establish and maintain sector specific prudential requirements for firms undertaking regulated cryptoasset activities in a new sourcebook known as CRYPTOPRU.
The consultation paper does not cover all aspects of the prudential regime for Issuers and Custodian but includes rules on the following areas:
- Own funds: There will be three tiers of capital, tier 1 capital (CET1), additional tier 1 capital (AT1) and tier 2 capital (T2), which will be known as “own funds”. Firm will be required to deduct certain items from “own funds” (e.g., intangible assets, tax reserves etc), and obtain prior permissions from the FCA to count certain items as regulatory capital, or to reduce regulatory capital.
- Composition of Own Funds: The FCA is proposing that firms hold own funds in the following proportions:
- CET1 ≥ 56% of total own funds requirement.
- CET1 + AT1 ≥ 75% of total own funds requirement.
- CET1 + AT1 + T2 ≥ 100% of total own funds requirement
The FCA clarifies that these are minimum levels and it is entirely possible and normal that a firm may choose to rely entirely on ordinary shares and retained earnings (which are CET1 capital) to meet their own funds requirement.
To prevent artificial inflation of a firm's balance sheet, the FCA proposes that cryptoassets held by the issuing firm, or held by a connected party (e.g. group entity or employer) are not included in these calculations (unless they are regulated, backed stablecoin). The same approach is proposed if the firm or a connected party controls the supply of the cryptoasset.
- Calculation: A firms minimum own funds requirement will be the higher of: (a) the permanent minimum requirement (PMR); (b) the fixed overhead requirement (FOR); and (c) (b) the K-factor requirement (KFR). For stablecoin issuers, the FCA has sought to align the requirements with those applicable to e-money issuers. Requirements for custodians will be aligned to those that apply now to investment firms.
- PMR: The FCA is proposing a base minimum requirement of own funds of GBP350 thousand for stablecoin issuers, and GBP150 thousand for crypto custodians. If a firm carries out both activities, the higher amount will apply.
- FOR: Firms will be required to maintain capital to cover ongoing fixed overheads, which should be equal to one quarter of the firm’s annual fixed overhead expenses in the previous year (calculated from figures in its most recent audited annual financial statements). As a firms expenses grow, the FOR capital amount will increase. The FCA explains that the purpose of the FOR is to ensure that firms can “withstand short term shocks and/or wind down its business in an orderly manner”.
- KFR: The KFR is intended to help address the potential for harm arising from a firm’s ongoing operations. The K-factor capital requirements will be either activity or exposure based. For example,
- For stablecoin issuers, the proposed K-factor is 2% of the total value of stablecoins in circulation, which aligns with the capital buffer for e-money issuers.
- For custody providers, the proposed K-factor is 0.04% of the total value of client cryptoassets safeguarded, which aligns the capital charge on custody assets...
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