The UK has taken a landmark step towards becoming a global leader in digital finance with the Financial Conduct Authority (FCA) releasing two detailed consultation papers, CP25/14 and CP25/15 aimed at establishing a comprehensive regulatory framework for cryptoassets. With over 350 pages of guidance, the proposals mark a decisive shift from the regulatory ambiguity that has long overshadowed the sector.

These sweeping reforms cover stablecoin issuance, cryptoasset custody, and bespoke prudential requirements, introducing a bold, institutional-grade regime that draws from traditional finance but recognises the unique nature of digital assets.

Stablecoin Issuers Face Strict Reserve Rules

Under the new proposals, stablecoin issuers must fully back digital tokens with high-quality liquid assets such as short-term UK government debt or money market funds. The reserves must be held in a statutory trust, reconciled daily, and redemption at par value must be made available within one business day. This is notably more stringent than the EU’s Markets in Crypto-Assets (MiCA) regulation, which allows up to five days for redemption.

In a move aimed at curbing speculative behaviour and pseudo-interest-bearing instruments, stablecoin providers will be prohibited from passing yield from reserve assets to end-users, though they may retain it themselves. This limitation is expected to reduce risk and align stablecoins more closely with traditional payment instruments rather than investment vehicles.

New Custodial Standards to Protect Client Assets

CP25/14 also introduces robust custodial rules, applicable not only to UK-based firms but also to overseas entities serving UK clients. Key among these is a prohibition on the co-mingling of client assets with firm funds. All client assets must be strictly segregated and subject to clear reconciliation protocols.

These custodial standards are designed to mitigate the risk of client losses in the event of operational failure or insolvency. They reflect a growing regulatory consensus that crypto firms should meet the same expectations around investor protection as traditional financial institutions.

Bespoke Prudential Regime Tailored for Crypto

In CP25/15, the FCA outlines a customised prudential framework for cryptoasset service providers. A minimum capital floor of £350,000 will apply to stablecoin issuers, with additional liquidity requirements designed to absorb potential market shocks.

The new capital and liquidity rules draw inspiration from the EU’s Investment Firm Prudential Regime (IFPR) but are specifically tailored to the risk profile of digital assets, including their volatility, cybersecurity threats, and technological complexity.

To implement these rules, the FCA proposes two dedicated rulebooks COREPRU and CRYPTOPRU, which will codify financial resilience and risk management standards. This move is seen as a bid to institutionalise the UK’s crypto sector and foster greater investor confidence.

Balancing Innovation with Regulation

While the proposals aim to encourage responsible innovation, some concerns have been raised about the potential impact on smaller firms and startups. Laura Navaratnam, UK Policy Lead at the Crypto Council for Innovation, noted that while the reforms lay strong foundations for a mature digital asset economy, compliance could be challenging for leaner firms.

“There is a trade-off,” she said. “These rules may be more manageable for large, well-resourced companies than for nimble startups or global players juggling compliance in multiple jurisdictions.”

Still, the overall tone of the proposals is clear: the UK is staking its claim as a serious player in the global crypto economy by creating a regime that welcomes innovation while safeguarding financial stability.

A New Chapter for UK Crypto

The FCA’s consultation period is open until October 2025, after which final rules are expected to be implemented. Industry participants now face the task of analysing and responding to the proposed framework.

For UK-based crypto firms and international players eyeing the UK market, these reforms mark the beginning of a new chapter, one that promises both opportunity and responsibility in equal measure. As the government pours the concrete for a regulated digital finance ecosystem, the UK’s ambition to lead in global crypto regulation is becoming more than just rhetoric.