FCA consults on proposals for Stablecoin Issuance and Cryptoasset custody to boost innovation and safety in the UK

Following the recent publication by HM Treasury, which proposes regulating cryptoassets under FSMA, the FCA has published two consultation papers titled CP25/14 and CP25/15. This article focuses on CP25/14, specifically on two areas: the issuance of qualifying stablecoins and the cryptoasset custody. The draft proposals are summarised below.

1. Issuance of qualifying stablecoin

Know your product and understand the risks associated: In other words, identify and manage all related risks. This helps prevent failures and ensures strong operational resilience.

Don’t issue stablecoins unless they are fully backed by assets equal in value to the stablecoins issued. By default, these assets must be low risk, secure, and sufficiently liquid. Subject to prior FCA notification and with the right expertise, issuers have the possibility to include other “expanded backing assets”, such as longer-term government debt instruments (maturing in over one year), units in a public debt CNAV Money Market Fund (PDCNAV MMF), assets, rights, or money held as a counterparty to a repurchase agreements or a reverse repurchase agreements.

Maintain robust risk management policies and procedures to prevent or reduce the risk of failure. This includes having appropriate tools for managing backing asset risks, such as a liquidity risk management policy and a contingency funding plan. Issuers must also comply with the Backing Assets Composition Ratio (BACR), which helps ensure that the issuer has enough liquidity in the backing pool to meet redemption requests within the required timeframes. The BACR must be calculated every 14 days and is defined as the sum of the peak estimated Daily Redemption Amount (DRA) and the Core Backing Asset Requirement, divided by the total value of assets in the backing pool, expressed as a percentage.

If the BACR is breached, the issuer must promptly notify the FCA and submit an action plan within one business day. The plan should outline steps to restore compliance with the BACR as soon as practically possible.

Redemption of qualifying stablecoins par value for all holders: This includes clarification on timing and par value. Subject to a valid request, redemption must occur at par value, regardless of the value of the backing assets. A payment order must be made to an account in the holder’s name no later than the end of the business day following receipt of the request.

A redemption request is considered valid if it is made by the holder of the qualifying cryptoassets (or their authorised agent) as outlined in the terms and conditions, and if the issuer has received all necessary information to meet obligations under financial crime regulations.

Safeguarding of qualifying stablecoin: In line with CASS requirements, cryptoasset custodians must exercise due skill, care, and diligence when selecting a third party. Written agreements should be detailed enough to ensure compliance with the proposed rules.

Firms should:

• Regularly review safeguarding arrangements
• Periodically assess whether diversifying third-party custodians is appropriate
• Maintain records of all appointments and reviews
• Obtain an acknowledgment letter signed by the third party confirming that the cryptoassets are held in trust for the benefit of holders
• Perform daily reconciliation and maintain up-to-date and accurate record-keeping. Any discrepancies must be addressed, and shortfalls topped up from the cryptoassets provider’s own liquidity resources within one business day

Outsourcing is allowed, but you remain accountable: Issuers may appoint third parties to act on their behalf, but they remain fully responsible for compliance. Issuers must conduct due diligence, have clear contracts outlining responsibilities, and ensure proper information-sharing arrangements. Third-party providers must be competent and experienced. They should be reviewed annually, with proper records kept. This includes parties managing backing assets, redeeming, or selling qualifying stablecoins on behalf of the issuer.

Disclosures must be accurate, clear, not unnecessary complex and easy to access, giving customers the information they need to make informed decisions, FAQs and infographics can help with this.

2. Custody of “qualifying cryptoassets”

The consultation paper focuses on the custody of “qualifying cryptoassets”, primarily to address the risks of failure of a custodian.

• Qualifying cryptoassets should be held separately from the firm’s own qualifying cryptoassets at all times. Both segregated and omnibus wallets to safeguard qualifying cryptoassets are allowed
• Qualifying cryptoassets will be held in a non-statutory trust for the qualifying cryptoassets held on behalf of clients
• Firms should ensure that the correct amount of qualifying cryptoassets is held at all times through daily reconciliation. “Firms will be required to check the total amount of each qualifying cryptoasset recorded in their client specific qualifying cryptoasset records against the content of the wallet addresses controlled by the Firm and (where relevant) against any qualifying cryptoassets held by third parties.”  The FCA expects that shortfall can be identified in detail (the reason for shortfall, the extent of shortfall, the number of clients affected, the estimated timeframe to resolve the shortfall)
• Keep and maintain up-to-date and accurate books

Stakeholders are expected to provide their view by 31^st July 2025. Final rules will be published in 2026.

If you would like to discuss cryptoassets further, or have any questions about CP25/14 and/or CP25/15, please contact our expert, Delphine Chen, who will be happy to provide detailed guidance and advice, should you need it.