Following the publication of draft Cryptoassets legislation by the Treasury, the UK’s Financial Conduct Authority (FCA) published its first consultation paper in line with its crypto roadmap. Titled “CP25/14: Stablecoin issuance and cryptoasset custody”, the consultation paper builds upon the FCA’s 2023 discussion paper on the same subject and is accompanied by an additional consultation paper (CP25/15) which sets out the prudential requirements for Cryptoassets firms. We have outlined the key proposal under CP25/14 below. The consultation closes on 31 July 2025.
Recap
In line with the Treasury’s definition provided in the draft legislation, the FCA defines “Qualifying stablecoins” as “cryptoassets which seek or purport to maintain their value with reference to a fiat currency (a government-issued currency, such as pound sterling or US dollar) by the issuer holding, or arranging for the holding, of fiat currency or fiat currency and other assets.”
8 Key Takeaways
- Money-like instruments – the FCA is proposing to regulate stablecoins as money-like instruments rather than investment products or e-money.
- Redemption at face value – issuers will need to enable stablecoin holders to redeem their coins at face value, meaning they receive exactly the amount the stablecoin was worth, neither more nor less. As an example, if one purchases a stablecoin pegged to £1, one will be able to redeem it for £1. This differentiates stablecoins from a fund where the redemption value can vary based on performance.
- Statutory trust – to safeguard qualifying stablecoins, each stablecoin product will need to be backed with secure, 1-to-1, liquid assets, held in separate statutory trust per stablecoin product. This arrangement protects the holders by separating their assets from those of the stablecoin issuers. The creation of a statutory trust will mean that the issuer will have fiduciary duty to act in the best interest of the beneficiaries (stablecoin holders).
- Third-party Custodian – the secure, liquid assets backing stablecoins should be held with a third-party custodian who is not in the issuer’s group. The FCA is proposing that custody firms should safeguard client qualifying cryptoassets in a non-statutory trust on behalf of their clients.
- Managing of backing assets – the assets backing stablecoins will need to be managed in a prudent manner. The FCA is proposing to introduce a requirement for issuers whereby the backing pool of stablecoins, with some exceptions, will need be formed of only certain types of asset classes namely, on demand deposits and government treasury debt instruments that mature in one year or less. Except for repurchase transactions, issuers will not be able to raise funds in the backing asset pool.
- Daily reconciliation – the FCA is also proposing a requirement to carry out reconciliations of backing assets at least daily with shortfalls topped up and excess removed. In contrast to traditional finance, an issuer or third-party holding qualifying stablecoin backing assets will not know who owns each coin. Thus, the FCA is intends to require issuers to record the number of qualifying stablecoins minted rather than keep a client-specific record.
- Interest – The interest on the backing assets can be retained by Stablecoin issuers. However, Stablecoin issuers will not be allowed to pass interest on the backing asset e.g. GBP to qualifying stablecoin holders further distinguishing them from investment products.
- Disclosures – proposed requirements relating to disclosure include publishing information regarding technology used, third parties involved, process of redemption and publishing the number of stablecoins and the backing asset composition at least once every three months.
Our View
The FCA’s recent consultation and discussion papers on stablecoins and cryptoassets represent a measured but positive development, highlighting the growing focus from both the FCA and the Government on this sector. The proposal to regulate stablecoins as money-like instruments aligns, as mentioned in the consultation paper, with the recommendations of the International Organization of Securities Commissions (IOSCO) and the Financial Stability Board (FSB), which advocate for regulating cryptoassets similarly to traditional financial products with comparable characteristics. Firms should begin evaluating whether the FCA’s proposed regulations could impact their business models.
How can we help?
If you have questions around the provision of cryptoasset services in the UK or want to understand how the FCA’s proposed regulations could impact your business, please contact our Cryptoassets team.
