The FCA has launched consultations on new rules for UK stablecoin issuance, cryptoasset custody and capital requirements, aiming to strengthen consumer protection and financial stability across the digital asset market.
Stablecoins issued in the UK will need to be backed 1:1 with liquid assets held in a statutory trust under new rules proposed by the Financial Conduct Authority (FCA).
The proposal, set out in consultation paper CP25/14 published today (May 28), would require stablecoin issuers to fully back their tokens with assets such as short-term government debt or bank deposits, which must be held separately from the firm’s own funds and safeguarded for consumers.
“We propose to require that backing assets are held on trust for the benefit of holders of the stablecoin,” the FCA states.
This legal structure is intended to ensure that consumers can reclaim their money quickly and fully, even if a firm fails.
The trust requirement forms part of a broader package of regulatory reforms aimed at bringing greater stability, transparency, and accountability to cryptoasset services in the UK.
Together with CP25/15, which outlines new capital and liquidity standards, the proposals signal the UK’s move towards a regulated crypto environment with protections similar to those in traditional finance.
“Crypto is largely unregulated in the UK. We want to strike a balance in support of a sector that enables innovation and is underpinned by market integrity and trust,” said David Geale, Executive Director for Payments and Digital Finance at the FCA.
The FCA is now seeking views from industry stakeholders, consumer groups and other interested parties on both consultation papers. The deadline for responses is July 31.
UK stablecoin issuance and operational requirements clarified
Under the proposals, stablecoins referencing a single fiat currency will need to be backed in full by liquid, low-risk assets. These backing assets must be held in a statutory trust, designed to protect consumers if a firm fails. The trust must be governed by English or Welsh law and the assets held by a custodian independent of the issuer.
To ensure resilience, the FCA proposes that the backing pool consist largely of assets that can be easily sold without losing value. This includes short-term government debt, on-demand deposits, certain money market funds and qualifying repurchase agreements.
At least 60% of the pool must be made up of the most liquid and secure instruments.
The FCA has also made clear that stablecoin holders must not receive interest or returns from the underlying assets. According to the regulator, this distinction ensures that stablecoins remain a means of payment rather than an investment product.
Redemptions must be honoured at face value, with the expectation that funds are returned to consumers no later than the following business day. The proposals also require stablecoin issuers to provide clear and timely information about how reserves are managed and how redemptions work in practice.
Regular disclosures must include the number of coins in circulation, the types of assets held in reserve and any material changes to the redemption process.
Custody and safeguarding of cryptoassets
Alongside the stablecoin proposals, the FCA has outlined a dedicated custody regime for cryptoassets. The aim is to ensure that firms safeguarding customers’ digital assets are held to standards similar to those already in place for traditional financial custody services.
The proposals apply to firms that provide custody as a regulated activity and are responsible for the safekeeping of cryptoassets on behalf of clients. These firms will be required to segregate client assets from their own, maintain accurate and up-to-date records, and hold the assets in trust.
According to the consultation, firms must establish robust governance and operational controls, including defined processes for accessing crypto wallets, managing private keys, and authorising transactions. The FCA also expects firms to conduct regular reconciliations and implement controls to prevent misuse or misappropriation of client assets.
The proposed custody regime is informed by principles from existing frameworks under the Client Assets Sourcebook (CASS) and is adapted for the specific characteristics of cryptoassets.
The FCA states: “We are seeking to apply standards that are as consistent as possible with other forms of custody, to support clarity and confidence”.
The paper notes that while the technology used in cryptoasset custody may differ, the underlying obligations to clients remain broadly aligned with those in traditional finance. These include duties to safeguard assets, manage conflicts of interest and maintain operational resilience.
Prudential standards to strengthen financial resilience
In a parallel consultation, the FCA has proposed a new prudential regime aimed at ensuring that cryptoasset firms maintain sufficient financial resources to operate safely and protect their customers.
Under the regime, all firms engaged in regulated cryptoasset activities will be required to hold a minimum amount of capital. The level of capital depends on the firm’s size and business model, with an initial base requirement supplemented by additional capital based on fixed overheads and exposure to credit, market, and operational risk.
Liquidity requirements are also proposed, requiring firms to hold enough liquid assets to meet potential outflows during a stress period. These must be in forms that can be readily converted to cash without significant loss in value.
The FCA explains: “Firms should be able to continue to meet liabilities as they fall due, including under stress”.
Firms that are part of larger groups will need to monitor and manage intragroup exposures. The proposals also introduce group-level consolidation rules, where appropriate, to ensure that financial risks are not transferred or hidden across corporate structures.
A central feature of the regime is the requirement for firms to maintain a detailed wind-down plan. These plans must identify the steps the firm would take to close in an orderly manner, including how it would protect client assets and minimise disruption.
The FCA states that this is essential to ensure that “firms can exit the market without causing harm to clients or to the wider financial system”.
The regulator has signalled the new rules will be closely aligned with international principles, including those from the Basel Committee and the Financial Stability Board.
Coordination with the Bank of England on systemic oversight
Today’s proposals are being developed alongside work by the Bank of England, which will take responsibility for stablecoins that may pose risks to financial stability. While the FCA will oversee the broader market for stablecoin issuance and custody, the Bank will regulate firms whose operations reach what is defined as a systemic scale.
This division of responsibility is intended to create a coordinated framework that aligns with the risk profile of different market participants. Stablecoins used in critical payment systems or by large user bases may have wider economic implications, and the Bank’s involvement is aimed at ensuring those risks are appropriately managed.
In a statement published alongside the consultations, Sarah Breeden, Deputy Governor for Financial Stability at the Bank of England, said: “We welcome the proposals the FCA have published as part of building the UK’s stablecoin regime. For those stablecoins that expect to operate at systemic scale, the Bank of England will publish a complementary consultation paper later this year.”
The Bank’s upcoming consultation is expected to include feedback on the possibility of allowing stablecoin issuers to earn and distribute returns on backing assets, an area currently restricted under the FCA’s proposed framework.
The two authorities have committed to working closely to ensure that their respective regimes are aligned and that firms can transition between regulatory regimes where needed.
