UK's Financial Conduct Authority Publishes Landmark Crypto Regulatory Framework

Update, June 30, 10:49 am UTC: This article has been updated to include comments from Brickken's Edwin Mata and Coinbase's Katie Harries.

The UK's Financial Conduct Authority (FCA) has published its landmark crypto regulatory framework, marking the completion of its crypto roadmap seeking to bring digital assets under the regulator's purview.

Significant new elements include mandatory licensing for crypto firms, capital stress-testing requirements, improved market manipulation and insider trading rules, as well as simplified capital requirement standards for stablecoin issuers, according to a Tuesday press release shared with Cointelegraph.

The licensing window for crypto companies will open from September until Feb. 28, 2027, before the regime goes live on Oct. 25, 2027.

The new framework means that crypto companies in the UK will be held to “similar standards” as other financial service providers in the country, wrote David Geale, executive director of payments and digital finance at the FCA, adding:

“We’ve created a framework that doesn’t force firms to choose between regulatory certainty and room to innovate – this regime means they can have both in a stable, competitive home to build and grow.”

Cryptocurrency firms, including trading platforms, custodians, stablecoin issuers, staking companies and other intermediaries, must obtain FCA authorization to operate in the UK under the new framework.

The framework comes nearly a month after the regulator concluded its consultation window on the guidelines for the country’s future crypto regime on June 3.

The draft marks a significant step in moving the UK crypto market from an “enforcement-led environment into a full financial services regime,” illustrating the FCA's efforts to make crypto firms operate akin to “regulated financial institutions,” Edwin Mata, lawyer and CEO of tokenization platform Brickken, told Cointelegraph.

Overview of FCA crypto regime, next steps and savings provisions. Source: FCA

Katie Harries, Coinbase's head of policy in Europe, praised the final rules for helping preserve access to “global liquidity” and the “innovative licensing structure,” but highlighted two pressing issues. She told Cointelegraph:

“While the FCA has made welcome changes to its prudential framework, it is an open question as to whether these changes have gone far enough to ensure the cost of doing business in the UK is not materially higher vis-a-vis other jurisdictions. ”

She added that the UK's future approach to DeFi regulation was her second concern, as earlier proposals amounted to a “de facto ban on centralised platforms providing access to DeFi applications.”

AML-authorized crypto firms need new licenses in the UK

Crypto firms with existing authorization under the money laundering regulations will not have their licenses automatically converted and will have to obtain new authorization.

Certain companies already operating in the UK may continue specified activities for a limited period as they seek authorisation under the framework’s transitional “savings provisions.”

The FCA said that pre-application support meetings for companies will be available starting next month.

The regulator will set out its policy statements during a webinar on July 17. It will also publish a further policy statement in September to establish how the regulatory perimeter applies to cryptoasset activities.

Related: Aave Labs’ Push gains UK FCA crypto registration

FCA simplifies stablecoin capital standards, promises tailored DeFi guidance

The FCA has maintained the core stablecoin framework but made minor adjustments, including simplifying the backing asset composition requirement by no longer requiring estimated redemption forecasts, adding requirements for statutory trust over reserves and removing unallocated backing fund accounts.

The guidelines will also require issuers to offer specific withdrawal rights to users, permit a 5% excess to be held in the backing asset pool and allow limited intragroup custody subject to safeguards.

The FCA noted that this establishes a “baseline regime for stablecoin issuance” and added that it will consult with the Bank of England later this year on how the the agency's rules will apply to stablecoin issuers recognized as systemic by HM Treasury.

New guidelines for stablecoin issuance. Source: FCA

Later this year, the FCA will also host a separate consultation on decentralized finance (DeFi) guidance and operational resilience guidelines for firms using distributed ledger technology (DLT).

It also plans to consult on updates to the Financial Crime Guide relevant to crypto asset firms.

“We’re going to continue to work on DeFi,” said Matthew Long, director of payments & digital assets at the FCA, adding that they are seeking a case-by-case approach as “true DeFi” with “no identifiable person undertaking the activity” will fall out of the scope of the regulation.