The UK’s FCA seeks public feedback on new stablecoin and cryptocurrency custody rules

As the UK moves closer to formalising its crypto regulatory environment, the FCA aims to establish London as a hub for compliant digital finance. 

Key Takeaways:

• The UK Financial Conduct Authority (FCA) has issued fresh regulatory suggestions aimed at stablecoin issuers and crypto custody providers.
• The public consultation period runs until July 31, 2025, with final guidelines scheduled to be released in 2026.
• The FCA is collaborating with the Bank of England, which will oversee stablecoins on a systemic basis.

The Financial Conduct Authority (FCA) of the United Kingdom has issued fresh regulatory proposals in which it seeks public feedback on its intentions for stablecoin and cryptocurrency custody regulation.

The FCA issued a press release on May 28 as part of its efforts to develop a clear framework for cryptoasset enterprises operating in the nation. The UK is also working to establish its regulatory framework for stablecoins and crypto custody, as well as gather feedback from diverse stakeholders. 

FCA Outlines Stablecoin Oversight Plan as United Kingdom Pushes Toward Full Crypto Regulation

The FCA called the ideas “the latest milestone on the road to cryptocurrency regulation,” citing months of industry involvement and earlier consultation rounds. The proposed measures aim to achieve a balance between encouraging innovation and protecting market integrity and consumer interests.

The FCA’s executive director of payments and digital finance, David Geale, stated that the agency intends to foster innovation while guaranteeing market trust.

“The FCA has historically promoted innovation that benefits consumers and markets. Currently, cryptocurrency is mostly unregulated in the UK. We aim to strike a balance in support of a sector that fosters innovation while maintaining market integrity and trust.”

The laws would apply to organisations that issue stablecoins and provide crypto custody services. Stablecoins, which are designed to retain a steady value by referencing fiat currencies such as the pound or dollar, are regarded as having significant potential to increase payment efficiency, particularly for cross-border transactions. However, the FCA emphasised that such benefits may only be enjoyed if stability and transparency are maintained. 

The recommendations require regulated stablecoin issuers to properly describe how their assets are backed and managed. Custody providers would also need to verify that consumer assets are secure and accessible at all times. The FCA stated that the rules are intended to limit the risk and effect of corporate failures in the sector.

The regulator is also considering expanding its innovation services to include a specific focus on stablecoins to assist financial services firms that are experimenting with the technology. 

The FCA works closely with the Bank of England on the stablecoin policy. The central bank will oversee stablecoins on a systemic basis. Sarah Breeden, the Bank of England’s deputy governor for financial stability, welcomed the FCA’s recommendations and said that a companion consultation paper would be produced later this year.

“For those stablecoins that expect to operate at systemic scale, the Bank of England will publish a complementary consultation paper later this year, including responding to industry feedback around allowing some return on backing assets,” Breeden said.

Industry Voices Concern Over UK Lagging Amid Unclear Stablecoin Regulations

As the Financial Conduct Authority (FCA) solicits public opinion on proposed stablecoin and custody laws, the Bank of England has added to the discussion.

In early April, the Financial Policy Committee (FPC) warned of increased systemic risks associated with the rapid rise of stablecoins and unbacked crypto assets.

The committee underlined the significance of having strong, liquid assets to enable redemptions, warning that badly managed stablecoins might disrupt financial markets, particularly if offshore sterling-pegged tokens gain popularity.

Meanwhile, industry executives are becoming restless. Executives from Coinbase, Ripple, and ClearBank warned that the UK’s tightening regulatory climate could drive innovation elsewhere. Delays in licensing and a lack of clarity, particularly with stablecoin rules, are impeding product launches and capital inflows.

Crypto-asset investments are high-risk; you may lose your capital