The UK’s Financial Conduct Authority (FCA) has taken a decisive step toward becoming a global hub for digital finance by unveiling a comprehensive new framework for regulating cryptoassets. Spanning over 350 pages, the two consultation papers CP25/14 and CP25/15 propose a robust, institutional-grade regime that aims to bring clarity, stability, and investor confidence to the UK’s crypto ecosystem.

With proposals covering stablecoin issuance, custodial standards, capital requirements, and risk management, the FCA’s blueprint signals a significant shift away from the regulatory ambiguity that has long characterised the space.

A Groundbreaking Shift in Stablecoin Regulation

At the heart of CP25/14 are stringent requirements for stablecoin issuers. Under the new proposals, firms will be required to fully back their digital tokens with high-quality liquid assets such as short-term UK government bonds or money market funds. These reserves must be held in a statutory trust, reconciled daily, and be available for redemption at par value within one business day.

This redemption standard is notably tougher than the EU’s Markets in Crypto-Assets (MiCA) framework, which permits up to five days. The UK’s move underscores a clear intent to instil financial discipline and ensure liquidity under stress scenarios, echoing the prudential safeguards common in traditional finance.

Importantly, stablecoin providers will not be allowed to pass on yield from reserve assets to users. While this may limit returns for investors, the FCA appears to be prioritising financial stability over interest-bearing incentives that risk resembling unregulated deposit-taking.

Raising the Bar on Crypto Custody

Another major reform is the overhaul of custodial standards. The FCA’s proposals extend not only to UK-based entities but also to international firms offering services to UK customers. These firms will be required to ensure strict segregation of client assets and will be prohibited from co-mingling customer funds with corporate or other assets.

This move is expected to reduce counterparty risk and protect clients in the event of insolvency, a key concern in recent high-profile collapses of crypto firms globally.

By enforcing traditional financial best practices such as segregation and reconciliation, the FCA is sending a strong signal that safeguarding consumer assets is non-negotiable in the evolving digital finance landscape.

Prudential Regime Tailored to Digital Assets

The FCA’s second consultation paper, CP25/15, introduces a bespoke prudential framework for crypto firms. It outlines capital floors with stablecoin issuers expected to hold at least £350,000 and liquidity buffers to withstand periods of market stress. These requirements reflect elements of the EU’s Investment Firm Prudential Regime but are finely tuned for the volatility and operational risks associated with digital assets.

To support this framework, the FCA proposes the launch of two new rulebooks: COREPRU and CRYPTOPRU. These will codify standards for capital, liquidity, and risk management, bringing much-needed consistency and transparency to an industry previously marked by uneven oversight.

While this approach borrows heavily from traditional financial regulation, it acknowledges the sector’s unique features, aiming to strike a balance between innovation and protection.

Opportunities and Challenges for the Industry

While the FCA’s initiative has been broadly welcomed, it also presents notable challenges. Large, well-capitalised firms are expected to adapt more easily to the new requirements. Smaller startups and global players juggling multiple regulatory regimes may find compliance more burdensome.

“There is a trade-off,” said Laura Navaratnam, UK Policy Lead at the Crypto Council for Innovation. “These rules may be more manageable for large, well-resourced companies than for nimble startups or global players juggling compliance in multiple jurisdictions.”

Nonetheless, the overarching aim is clear: to foster responsible innovation while curbing the speculative behaviour that has led to market instability. By embracing strong regulation, the UK hopes to set itself apart as a credible, trustworthy destination for digital finance.

A Defining Moment for UK Crypto Policy

With consultations open until October 2025 and final rules expected shortly thereafter, the FCA’s proposals represent a foundational moment for UK crypto policy. The scope and precision of the reforms suggest the UK is not merely reacting to past market failures but actively designing a future-proof regulatory environment.

As the concrete begins to set on this new digital finance architecture, the message is unmistakable: the UK is open for crypto business, but only for those ready to play by the rules.