UK FCA nears end of consultation on cryptoasset regulations

On January 23, the United Kingdom’s top finance sector regulator, the Financial Conduct Authority (FCA), launched another consultation as part of its “final step” to creating a comprehensive regulatory regime that will bring digital currency into the U.K.’s financial services regulation.

The most recent consultation focuses on how the FCA’s “Consumer Duty” rules will apply to digital currency firms as well as the regulator’s proposed approach to international firms.

Status quo

Currently, digital assets are largely unregulated in the U.K., except for rules on financial promotions and anti-money laundering and countering the financing of terrorism (AML/CFT).

However, in April 2025, the Treasury published a draft Statutory Instrument (SI) aimed at definitively bringing certain digital currency activities—including issuing qualifying stablecoins, safeguarding qualifying digital currency, operating a digital currency trading platform, intermediation, and staking—under the FCA’s remit, giving the regulator authority to oversee those activities.

Subsequently, in September, the FCA published a consultation on the proposed application of its rules to firms conducting these soon-to-be-regulated activities. Based on the proposals, digital currency firms would need authorization to operate in the U.K. and must abide by the same standards expected of all other FCA-regulated entities, including financial crime, operational resilience, senior management arrangements, and other systems and controls.

The SI legislation was finally laid before parliament in December and is expected to pass into law later this year without issue. In anticipation, the FCA is now seeking to finalize its proposed regime for digital currency, including addressing previously unaddressed areas such as consumer duty and international firms.

Duty to customers

“Consumer duty” is an FCA rule that came into effect in July 2023, intending to set “a higher standard of consumer protection in financial services.”

It introduced a new consumer principle that firms “must act to deliver good outcomes for retail customers.” This amounted to three key “cross-cutting” obligations: firms must act in good faith towards retail customers; must avoid causing foreseeable harm to retail customers; and must enable and support retail customers to pursue their financial objectives.

These obligations were ultimately aimed at ensuring that firms provide customers with suitable products and services, fair prices and value, clear communications, and effective consumer support.

The intention, as outlined in the consultation, is for these standards, which already apply to existing finance sector entities in the U.K., to be imposed on digital currency firms.

While the FCA acknowledged that some digital asset firms will not have been regulated before and “operate differently to traditional finance markets,” it suggested that, in its current state, consumer duty “gives cryptoasset firms the flexibility to assess their customers’ needs and tailor their products and communications accordingly.”

Nonetheless, the FCA said that, given the differences between traditional and digital asset firms, it was “consulting on guidance to clarify how the Duty will apply to cryptoasset firms.”

The regulator also noted that consumer duty rules will likely change before they apply to digital currency firms, and as such, these firms can likely expect “a reduction of the overall costs of applying the Duty.”

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International firms

According to the regulator, a U.K. legal entity is defined as a “U.K. individual, or partnership, body corporate or unincorporated association incorporated or formed under the law of any part of the United Kingdom.”

This is in contrast to a local ‘branch,’ which is one (or more) permanent places of business in the U.K., with no legal personality of their own, and legally dependent on the international firm.

In other words, a legal entity is its own “person” in the eyes of the law, while a branch is just an extension of an existing one. Generally speaking, having a branch in the U.K. is unlikely to meet the FCA’s standards due to concerns about oversight and consumer protection.

This means that, under the proposed rules, international or decentralized digital currency firms may have to set up a legal base of operations in the U.K. in order to service local clients.

This would cause problems for the likes of Binance and Coinbase (NASDAQ: COIN), which don’t have a legal entity in the U.K. and would therefore have to either set one up or withdraw services to U.K. customers once the rules come into force.

However, in its consultation, the regulator suggested that “in certain circumstances” it believed that U.K. cryptoasset trading platforms should be able to obtain FCA authorization via a U.K. branch.

In such cases, the FCA said it would expect the local regulator where the firm is based to have “comparable levels of regulatory protection and regulatory requirements in place, as determined by the FCA.”

It added that “we propose to assess cryptoasset firms’ intended legal form individually at the FCA authorisation gateway and during supervision to ensure they meet our fundamental threshold conditions and general requirement.”

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Market reception

Summing up its consultation, the FCA suggested that the proposed rules “take account of the novelty of the cryptoasset market and the business models within it,” adding that “there are trade-offs in designing a regulatory regime for cryptoassets, and we are open to feedback on our proposals.”

Gauging the immediate market response, it appears the regulator is not alone in its rosy view of the proposed regime.

“Practically, the changes introduced by this regime are profound. With greater certainty in law, in regulation, and in serviceable business, never has there been a better time for cryptoasset businesses to realize U.K. opportunities at scale,” said Nick Jones, founder and CEO of digital-asset-as-a-service platform Zumo. “It’s clear policymakers want this comprehensive regulatory regime to act as a bedrock for a thriving and competitive cryptoasset business ecosystem in the UK.”

Speaking with CoinGeek, Jones praised the “more systemic, phased, and predictable consultation process,” when compared to the more fragmented, enforcement-led approach to crypto regulation seen in certain other jurisdictions.

“The clearly mapped timeline of consultation papers plots out the route to arriving at a regulatory regime that takes all stakeholders’ concerns into account,” Jones said. “It will help us avoid the current malaise seen in the U.S., where Coinbase’s decision to withdraw support for the CLARITY Act has sent shockwaves through the digital assets sector and risks derailing market structure reform.”

Earlier in January, the current U.S. attempts at a digital asset market structure bill, in the form of the long-anticipated CLARITY Act, were thrown into chaos as Brian Armstrong, CEO of Coinbase, said his company would “rather have no bill than a bad bill” and thus it “unfortunately can’t support the bill as written.”

This is a situation the U.K.’s FCA is attempting to avoid with its extensive consultation process, apparently to some success—or at least credit.

“As the FCA enters the final phase of its consultation and gathers feedback on applying Consumer Duty to crypto firms, credit must be given to the regulator for taking industry views on board, where they’ve been given,” Jones said. “Businesses will now have clarity on what it means to operate a cryptoasset business in the UK; and consumers for the first time will have a tangible set of investor protections and the assurance of interfacing with regulated businesses held to the stringent standard of UK financial services.”

The FCA said that any interested parties wishing to have their say on the proposed rules will have until March 12 of this year to give feedback.

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