FCA Seeks Feedback on Stablecoin and Crypto Custody Regulation – The Full FX
Categorised: Crypto, The Stream | Tags: crypto, custody, FCA, proposals, regulation, Stablecoins, UK
Posted by Colin Lambert. Last updated: May 29, 2025
The Financial Conduct Authority (FCA) of the UK has released two documents and initiated a consultation process as part of its efforts to create a regulatory framework for crypto assets and stablecoins.
In its report regarding stablecoin issuance, the FCA notes, “If an existing stablecoin issuer were to fail today, it might be unclear to holders how to recover their funds. The rights that stablecoin holders possess concerning any funds or assets held by the issuer may differ, and the issuer might not have strictly separated the funds or assets backing the stablecoin from its own assets. While regulating fiat-backed stablecoins won’t entirely prevent failures, it can help diminish both the likelihood and impact.”
The suggested regulations will require stablecoin issuers, while still complying with money laundering laws, to transition from FCA registration to authorization, which entails closer scrutiny. For entities interacting with the FCA for the first time, the report emphasizes, “We plan to apply the same regulatory framework to qualifying stablecoin issuers, cryptoasset custodians, and associated individuals as we do to other regulated entities.”
Describing these papers as a significant step towards crypto regulation, the FCA asserts that the proposals stem from extensive stakeholder engagement through roundtables and feedback on prior discussion documents. The proposed regulations aim to ensure that regulated stablecoins preserve their value and that clients receive clear insights into the management of the backing assets.
Under these proposals, firms offering crypto custody services, responsible for safeguarding consumers’ crypto assets, must ensure that these assets are appropriately secured and readily accessible at all times. The proposals also aim to lessen the probability and impact of failures among regulated firms involved in stablecoin issuance and cryptoasset custody.
To support the potential benefits stablecoins could bring to financial services and the broader economy, the FCA intends to investigate incorporating a specific emphasis on stablecoins into its innovation services in the near future.
“At the FCA, we have long endorsed innovation that enhances consumer and market benefits,” states David Geale, executive director for payments and digital finance at the FCA. “Currently, the crypto space is largely unregulated in the UK. Our goal is to find a balance that supports a sector capable of innovating while ensuring it is grounded in market integrity and trust.”
The FCA will collaborate closely with the Bank of England on the forthcoming regulatory framework for stablecoins. Sarah Breeden, deputy governor for financial stability at the Bank of England, remarks, “We welcome the proposals issued by the FCA as part of establishing the UK’s regime for stablecoins. For stablecoins expected to operate on a systemic scale, the Bank of England will release a complementary consultation paper later this year, which will address industry feedback regarding allowing some return on backing assets. We continue to work alongside the FCA to guarantee the integrity of the UK’s stablecoin framework, including the transition process for firms.”
The consultation paper on stablecoins and crypto custody can be accessed here, and the paper on the prudential regulation of crypto assets can be found here.
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