FCA Proposes Strict Rules for Stablecoin Backing and Crypto Custody → Regulation

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Briefing

The UK Financial Conduct Authority (FCA) has published a consultation paper detailing a comprehensive regulatory regime for stablecoin issuance and cryptoasset custody, immediately raising the compliance floor by mandating full, segregated backing of all fiat-referenced tokens. This action establishes a robust prudential framework, requiring stablecoin issuers to back their coins at all times with high-quality, liquid assets and to honor redemption requests at face value within one business day. This section must front-load the entire strategic picture.

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Context

Prior to this consultation, the UK digital asset landscape for stablecoins operated largely without a dedicated prudential framework, leading to market uncertainty regarding asset quality, liquidity, and consumer redemption rights. This regulatory void created systemic risk, as the lack of mandatory segregation and high-quality reserve requirements left stablecoin holders exposed to issuer insolvency and operational failure, a challenge the new framework directly addresses by integrating stablecoins into the core financial services law.

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Analysis

This proposal fundamentally alters the operational architecture for regulated stablecoin issuers and custodians. Issuers must overhaul their treasury management systems to ensure 100% backing with specific, low-risk assets and establish non-affiliated, third-party custody for the backing pool, a direct imposition of fiduciary duty. For custody providers, the mandate to hold client cryptoassets in non-statutory trusts, segregated from the firm’s own holdings, necessitates a complete re-engineering of wallet infrastructure and key management protocols to mitigate counterparty risk in the event of firm failure. The prohibition on passing interest from reserve assets to holders further impacts the stablecoin business model, shifting the value proposition from yield to pure payment utility.

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Parameters

Required Reserve Ratio → 100%, mandating full backing with high-quality, liquid assets for all qualifying stablecoins.
Redemption Standard → Issuers must honor all redemption requests at par value within one business day.
Consultation Deadline → July 31, 2025, the final date for industry feedback submission on the proposed rules.
Custody Requirement → Client cryptoassets must be held in non-statutory trusts, segregated from the custodian’s own assets.

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Outlook

The immediate next phase involves industry stakeholders submitting detailed responses to the consultation by the July 31, 2025, deadline, particularly concerning the feasibility of the one-day redemption window and the prohibition on reserve yield. This UK framework sets a critical precedent, aligning with the prudential rigor of the EU’s MiCA regulation, which could accelerate global regulatory convergence toward mandatory full reserve and asset segregation standards, ultimately driving institutional adoption by mitigating the most significant counterparty risks. Final rules are expected in 2026.

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Verdict

This definitive move by the FCA establishes a gold standard for stablecoin prudential integrity, forcing a necessary and irreversible maturation of the UK’s digital asset market architecture.

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