The UK’s Move to Formalise Cryptoasset Regulation: From Market Entry to Market Maturity.

The FCA’s latest crypto consultation paper, CP26/4: Application of FCA Handbook for regulated cryptoasset activities II, is part of a series of consultations setting out the UK’s proposed regulatory framework for cryptoassets*.

CP26/4 proposes that cryptoasset activities will be fully brought within the FSMA regulatory perimeter and will be subject to the same standards of conduct, governance, accountability as traditional financial services institutions and requirements relating to the safeguarding of qualifying cryptoassets. Firms have until the 12 March 2026 to respond to the consultation paper.

The proposals represent a structural shift in how crypto businesses must be designed, governed and operated in the UK. For Crypto firms, speed to market is no longer the primary differentiator; regulatory resilience and institutional credibility will be.

The application period for firms that want to continue undertaking regulated cryptoasset activities after October 2027 will be open from 30 September 2026 to 28 February 2027.

Global context

Globally, regulators are aligning on the treatment of crypto. IOSCO standards, the EU’s MiCA regime and legislative development in the US all point towards the same outcome: the regulation of crypto firms as financial services institutions rather than technology firms only.

The FCA’s principle of “same risk, same regulatory outcome” signals that crypto firms creating risks comparable to traditional finance will face equivalent oversight.

For firms, this also creates a competitive dynamic. While compliance expectations are rising, regulatory clarity reduces uncertainty. Firms that adapt early may benefit from greater credibility with banks, institutional partners and customers, while those that delay face higher remediation costs or enforced exit.

Consumer Duty: proactive care for retail customers

The Consumer Duty is the centrepiece of CP26/4 and represents the biggest cultural and operational change for crypto firms.

The FCA proposes to apply the Duty in the same way it applies across the wider financial services sector. This includes Principle 12 (i.e. the obligation to deliver good outcomes for retail customers) supported by cross-cutting rules and outcome-based requirements covering product design, pricing, customer understanding, customer support and treating vulnerable customers fairly.

A narrow exclusion exists for trading between participants on a UK Qualifying Cryptoasset Trading Platform (QCATP). However, the Duty still applies to platform interactions, communications, onboarding, and marketing. For UK-issued stablecoins, the Duty applies in full.

The key implication is a move away from disclosure-led compliance towards outcomes-based supervision. Firms distributing tokens with anonymous or offshore issuers must assess fair value and target markets; lack of issuer information does not remove responsibility.

This requires firms to rethink product governance, data collection, and management information. Compliance becomes a firm-wide discipline, owned at board level and evidenced continuously through monitoring and testing.

Further information on how Consumer Duty requirements will apply to cryptoasset firms is contained in GC26/2: Application of the Consumer Duty to cryptoasset firms

Customer Complaints

Formal consumer redress mechanisms will be introduced for crypto businesses.

Firms will be required to comply with DISP 1, implementing structured and timely complaints handling processes. The Financial Ombudsman Service (FOS)’s compulsory jurisdiction will be extended to regulated cryptoasset activities, giving retail customers a direct route to independent dispute resolution.

However, FSCS protection will not apply, keeping investment risk with the consumer. This distinction reinforces the FCA’s position that regulation is not an endorsement of cryptoassets as low-risk investments, but a mechanism to ensure firms act properly and transparently.

For firms, poor conduct may translate into financial penalties, case fees and reputational damage, even where the underlying investment performs as expected. Complaint data, management responses and senior oversight will become part of the FCA’s supervisory lens.

Adapting core rulebooks: COBS, CASS, and SM&CR

The FCA is adapting existing frameworks rather than creating a new regime.

Under COBS, appropriateness assessments for direct offer promotions are being strengthened, with existing guidance elevated into binding rules. Marketing restrictions will remain for most cryptoassets, though UK-issued qualifying stablecoins will benefit from a more proportionate treatment.

Under CASS, firms holding client cryptoassets will be required to hold them under a non-statutory trust, legally separating them from firm assets. Limited exceptions are permitted for operational necessities such as exchange settlement liquidity (subject to a proposed 1% cap) and staking, but only under strict conditions and with explicit client consent.

Under SM&CR, the FCA proposes new thresholds that may classify the largest custodians and stablecoin issuers as Enhanced SM&CR Firms, significantly raising expectations around governance, documentation and individual accountability.

This approach is pragmatic, applying proven regulatory standards while recognising crypto operational realities. Firms achieving compliance will gain strategic credibility in a global market.

As firms move from consultation to implementation, leadership teams should be asking:

Are we positioned to apply as soon as the application gateway opens in September 2026, and do we have a credible contingency plan if authorisation is delayed or refused?
Can we evidence fair value, defined target markets and good customer outcomes across all products including those linked to decentralised or offshore issuers?
Are our safeguarding arrangements compatible with the proposed CASS requirements, and can we operate within the limits of permitted exceptions such as settlement float and staking?
Are our complaints processes robust enough for FOS scrutiny, and have we assessed the impact (financial and reputational) of increased complaint visibility?
Do our SM&CR allocations, management information and UK mind and management genuinely reflect how the firm operates today and how it plans to scale tomorrow?

Firms are encouraged to start planning for the new requirements now and not wait for the FCA to issue final requirements, or for the application window to open at the end of September.

As experts in building the regulatory frameworks you will need across fintech, trad-fi, and investments, we are well placed to help you scale your compliance frameworks at pace to meet the regulator’s demands. Please do get in touch.

In the meantime, we will keep you updated on any regulatory developments which you will need to be aware of. Watch out for our article on the application of the Consumer Duty to cryptoasset firms in the coming weeks.

*Other recent relevant consultations / discussion papers are:

** FCA Crypto Roadmap