The FCA’s long-awaited cryptoasset consultation promises clarity for a fast-moving industry. But can slow, careful rulemaking keep pace with global innovation?
The Financial Conduct Authority (FCA) finds itself in something of a bind. Digital assets are one those corners of the market where innovation moves faster than the rulebook, populated by smaller, ‘move fast and break things’ style players whose operating models don’t mirror legacy financial services. Regulating that kind of ecosystem is inherently difficult, but with several other jurisdictions pushing ahead to do so, all eyes are on the FCA to act.
Which brings us to late December, with the publishing of Consultation Paper 25/40: the FCA consultation that brings regulated cryptoasset activities into the regulatory spotlight. It’s been a long time coming and not without tension. But it’s also the clearest signal yet that the ambiguity of the past three years is drawing to a close.
To understand the mood around this consultation, let’s place it in the regulatory arc of the last 18 months. Throughout 2025, the UK’s stance on digital assets matured considerably. Legislation, consultations, roundtables, and the Treasury’s own work on stablecoins marked progress on the official Crypto Roadmap. Meanwhile legacy institutions – including some that once treated digital assets like a curious novelty – began engaging seriously, pouring resources into product development. The traditional finance market started making bets that these once-niche technologies are here to stay.
Then, in December, the draft Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2025 fell before parliament, expanding the FCA’s digital asset remit beyond the limited territory it has occupied so far – financial promotions and anti-money laundering. With this expansion, the FCA can begin regulating the business activities of these players in earnest, signalling a newfound maturity in the UK market.
So, the rule-setting begins. What will it entail?
A look at the detail
The proposed rules sit across five categories of activity: trading platforms, intermediaries, lending and borrowing, staking, and decentralised finance. The running theme across them is ‘same risk, same regulatory outcome,’ but with the caveat that this does not mean simply copying and pasting from the regulation that applies to traditional finance players.
“Some of the provisions show an improved understanding by the FCA of the unique needs of the crypto industry compared to traditional finance,” Anya Markitanova, vice president of sales and business development at OpenTrade, told Capital Pioneer. She points to the decision to adopt a principles-based approach to algorithmic and automated trading, “as opposed to copying the more restrictive, prescriptive measures of MiFID.” This, Markitanova argued, “recognises the unique nature of the crypto market and helps keep the UK.”
That said, there are still areas where some say the FCA has fallen short. That is, after all, why it is a consultation.
“One area that requires further change is the FCA proposals for prudential capital requirements for stablecoin issuers,” said Adam Jackson, chief strategy officer at Innovate Finance.
“The FCA currently proposes additional capital reserve to be set aside on an increasing scale as more stablecoin is issued. This doesn’t reflect risk and will mean UK home-grown stablecoin issuers have to continuously raise equity capital just to top up this needless prudential requirement.”
Trading platforms: The key area of reform
As it appears to show a matured understanding of digital assets, the consultation also draws clear lines of risk depending on whether the client is retail or institutional. Take for instance, the proposals around trading platforms: institutional-only platforms can continue to serve UK firms from offshore, while retail-facing ones will require a UK legal entity. Similarly, any cryptoasset must be admitted on at least one of these UK-authorised trading platforms before intermediaries can provide service to retail consumers.
Markitanova is candid about this retail/institutional division: “This does introduce a burden for those [retail-facing] firms, but at least it provides the exact requirements as to what needs to be done. Those businesses can start to prepare for compliance.” She also noteed that while requiring a foot on the ground to serve the UK retail market “could preclude some players from entering”, particularly smaller firms, the reality is that trading platforms typically need significant scale to function effectively.
The softening of the FCA’s position on exchanges trading on their own venues is also worth highlighting. This was originally slated for prohibition, but the consultation now proposes allowing principal dealing within tight constraints. It’s a tacit acknowledgement that global digital asset markets already work this way, and that attempting to outlaw it locally would simply encourage firms to structure activity elsewhere.
CeFi vs DeFi
Just as the FCA draws a distinction between retail- and institutional-serving firms, it also moves up the risk curve between centralised (CeFi) and decentralised finance (DeFi).
The FCA’s approach here is high level, but not directionless. Where a protocol is truly decentralised, it falls outside the scope of the proposals. Where it is merely ‘DeFi-like’ – meaning the technology may be decentralised but there is still an identifiable controlling person or business – the proposals would apply.
However, this still leaves some ambiguity.
“Firstly, we can’t define what DeFi is – what are the levels of decentralisation that create a hook to being regulated? That’s a difficult question to answer,” said Ian Taylor, chief operating officer at ht.digital and board adviser at CryptoUK.
Beyond that, leaving firms to assess whether they are truly decentralised is tricky.
“Companies may change their business models and marketing to get around it, not because they want to behave nefariously, but simply because it’s a huge resource drain,” Taylor added.
“That creates a vicious cycle of the regulator trying to regulate activities to protect against consumer harm, but it may not be that the builders of this software fall onto any regulatory hook.”
Time to act
The FCA has signalled that further deliberation will follow, but that slow burn creates challenges for firms trying to build new products or expand in the UK. “You can’t design safe, compliant operating models without clarity on those areas,” Taylor said. “If you’re building a new product and rolling out a roadmap when you don’t know what the regulatory requirements will be, it’s very difficult to do anything.”
That sense of waiting is compounded by the regulator’s own timelines. The Crypto Roadmap points to final rules being published in 2026 — but as CP25/40 itself demonstrates, that journey is still evolving. Many in the industry would undoubtedly welcome a refreshed roadmap setting out what comes next, and when.
Then there is the question of where these proposals place the UK in the global digital assets landscape: currently, not leading or lagging, but somewhere in the cautious middle.
Markitanova put it succinctly: “Everyone’s biggest fear was that the UK would just copy the EU approach, which is now considered one of the most burdensome. That didn’t happen.” Instead, the UK has positioned itself between the prescriptive EU and the more permissive United Arab Emirates or US.
However, what may hold the UK industry back is simple regulatory slowness, particularly as the US races ahead with signing digital asset rules into law.
In fact, Taylor stated he has seen some firms move their operations offshore in search not of permissiveness but of clarity. “We’ve now missed that second-mover advantage,” he says. But there is still optimism: “Something is better than nothing. We’ve now got something to work with, and we can formulate our response. Let’s keep an open mind.”
The consultation closes on February 2, with many firms taking a ‘wait and see’ approach until the rules are final. Of course, those final rules will undoubtedly come with a transition period, allowing firms time to dedicate resources and adjust their business models accordingly.
In the meantime, in a market shaped by speed and innovation, slow and steady may not be glamorous. But the FCA seems willing to bet that, in the long run, it will be the tortoise and not the hare that wins the race.
Only time will tell whether that bet pays off.
