The FCA’s new proposal would extend rules around client money, governance and senior manager accountability
The UK’s Financial Conduct Authority (FCA) has proposed applying traditional client money rules to fiat funds linked with crypto custody and on/off-ramping, as part of a new consultation that would bring the sector fully under the Financial Services and Markets Act (FSMA) framework.
The consultation, published on September 17, sets out a broad package of reforms designed to align crypto with mainstream finance. Firms that are currently registered under anti-money laundering rules would be required to secure full FSMA authorisation, a significant step up in regulatory oversight.
The FCA also intends to apply its cross-cutting standards on governance, systems and controls, and financial crime prevention to the sector, incorporating obligations under the anti-money laundering and counter-terrorist financing regime as well as the so-called Travel Rule for international transfers.
Senior executives in crypto firms would also face direct accountability under the Senior Managers and Certification Regime, extending a framework originally designed for banks and insurers to cover digital asset businesses. At the same time, crypto firms would be brought within the FCA’s Supervision framework, covering reporting obligations, external audits, skilled person reviews and notifications of material business changes.
The regulator stressed that the initiative was not about establishing a “zero-failure” regime, but about embedding a baseline of protections and consistency across financial services.
“We want to develop a sustainable and competitive crypto sector – balancing innovation, market integrity and trust,” said David Geale, executive director of payments and digital finance at the FCA.
“ Our proposals won’t remove the risks of investing in crypto, but they will help firms meet common standards so consumers have a better idea of what to expect. We are working now on what those standards should look like, ahead of legislation to bring it within our regulation.”
Implications for the industry
For crypto exchanges, wallet providers and payments businesses, the proposals would mark a sharp rise in regulatory obligations. Firms would face higher compliance costs, particularly as they adapt custody and safeguarding frameworks to meet the FCA’s client money rules. Reporting and audit requirements would increase in line with other FSMA-authorised firms, while governance structures and potential conflicts of interest would come under closer scrutiny.
Although burdensome, the regulator argues that imposing consistent standards will strengthen consumer protection and improve trust in the sector. In the FCA’s words, the framework is designed to “align crypto with mainstream finance” while giving firms a clearer pathway to authorisation and ongoing supervision.
How it compares internationally
The UK’s direction contrasts with other major jurisdictions. In the European Union, the Markets in Crypto-Assets (MiCA) regulation has established a standalone licensing framework with specific conduct requirements tailored to the sector. In the US, oversight remains fragmented, divided between the Securities and Exchange Commission and the Commodity Futures Trading Commission, resulting in an uneven, enforcement-led approach.
By applying FSMA directly to digital assets, the FCA is pursuing a technology-neutral model. Rather than creating a bespoke framework, the regulator is signalling that crypto should be treated as another form of financial service, governed by the same principles and protections as traditional finance.
The consultation runs until November 12, 2025, with a discussion period closing on October 15. Final rules are expected next year, alongside separate consultations on prudential standards and stablecoin custody.
