FCA Proposes Tailored Regulatory Framework for UK Crypto Firms → Regulation

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Briefing

The UK Financial Conduct Authority (FCA) has published Consultation Paper CP25/25, outlining its proposed application of existing Handbook rules to firms engaged in regulated cryptoasset activities. This action signifies a pivotal step in establishing a comprehensive, tailored regulatory regime for the digital asset sector in the UK, moving beyond the current focus on financial promotions and crime prevention. The framework mandates that firms apply for authorization and implement robust systems for operational resilience and financial crime prevention, while notably exempting them from certain traditional finance principles concerning integrity, due diligence, and fair customer treatment, with consultation closing on November 12, 2025, for core chapters.

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Context

Prior to this action, the UK’s regulatory approach to cryptoassets primarily centered on anti-money laundering (AML) and counter-terrorist financing (CTF) obligations, alongside rules governing financial promotions. This limited scope left a significant portion of the digital asset market operating within a legal gray area, creating uncertainty for businesses regarding compliance expectations and posing challenges for consumer protection. The prevailing compliance challenge stemmed from the absence of a comprehensive, activity-specific framework, which often led to attempts to shoehorn novel crypto activities into traditional financial regulations, a strategy the FCA now acknowledges as unproductive.

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Analysis

This consultation directly impacts the operational architecture and compliance frameworks of digital asset businesses operating within or seeking to enter the UK market. Firms will be required to develop and integrate new systems and controls to meet heightened standards for operational resilience, particularly concerning IT outages and cyber-attacks, and to strengthen financial crime prevention protocols. The proposed framework alters product structuring and internal governance by establishing a bespoke regulatory path that acknowledges the unique characteristics of cryptoassets, rather than simply replicating traditional finance rules. This necessitates a strategic re-evaluation of existing business practices to align with the FCA’s differentiated approach, fostering a more secure yet competitive environment for innovation.

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Parameters

Issuing Authority → UK Financial Conduct Authority (FCA)
Regulatory Action → Consultation Paper CP25/25 → Application of FCA Handbook for Regulated Cryptoasset Activities
Jurisdiction → United Kingdom
Targeted Entities → Firms undertaking regulated cryptoasset activities, including exchanges, custodians, and intermediaries
Key Compliance Requirement → Application for authorization and strengthened operational resilience, IT security, and financial crime prevention systems
Consultation Close Date → November 12, 2025 (for chapters 1-5)

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Outlook

The release of CP25/25 marks the next phase in the UK’s commitment to developing a comprehensive digital asset regulatory regime, building on the HM Treasury’s draft statutory provisions from April 2025. The consultation period, with deadlines in October and November 2025, provides a critical window for industry stakeholders to influence the final shape of these rules, particularly concerning the application of Consumer Duty and access to the Financial Ombudsman Service. This tailored approach could set a precedent for other jurisdictions seeking to balance innovation with robust oversight, potentially attracting digital asset businesses to the UK by offering a clear, yet adaptive, regulatory pathway.