We have responded to the FCA's discussion paper: 'DP25/1: Regulating cryptoasset activities' through the International Regulatory Strategy Group (IRSG). The IRSG is a joint venture between TheCityUK and the City of London Corporation. Its remit is to provide a cross-sectoral voice to shape the development of a globally coherent regulatory framework that will facilitate open and competitive cross-border financial services.
This discussion paper marks a pivotal moment in shaping the regulatory direction and framework governing cryptoasset markets in the UK. We recognise the FCA’s intent to provide greater clarity and consumer protection, while enabling market access and innovation. However, we ask that the FCA considers the points below to ensure an effective, proportionate and internationally competitive regime.
-
Clarity on the intentions and outcomes: Some aspects of this DP require greater clarity, in particular, the proposals for authorising overseas cryptoasset trading platforms serving UK retail clients via branches. A clearly defined regulatory perimeter is vital to avoid unnecessary complexity for firms and ensure an effective and competitive regime.
-
Alignment with existing regime: Where appropriate, the regulatory approach to cryptoassets should reflect the established principles and permissions that apply to traditional financial instruments. While recognising the unique characteristics of cryptoassets, the regime should avoid imposing requirements that go beyond what is expected for traditional assets, unless justified by specific risks, thereby promoting fairness, legal clarity, and operational continuity across markets.
-
Minimising disruptions to existing cryptoasset activities: While some of the FCA's proposals are legally sound and accepted in traditional markets, the FCA must ensure that future rules reflect current cryptoasset market practice and carefully consider any unintended consequences or undue disruption that new rules may present in practice due to the unique nature of cryptoassets markets.
- A balanced and proportionate regulatory approach: The FCA must ensure that the future UK regulatory regime for cryptoasset activities is proportionate, risk-sensitive, and outcomes focused, recognising the diverse nature of firms and business models in the sector. The framework should be designed to deliver appropriate consumer protections and uphold market integrity, while avoiding the imposition of undue burdens or disproportionate liability on either the customers or firms. This is vital to support UK-based innovation and avoid driving future activity overseas.
- International alignment and competitiveness: The FCA must establish a regulatory framework that recognises the decentralised nature of the cryptoasset market, where activities often flow across multiple jurisdictions. The FCA should avoid creating excessively stringent rules that could disadvantage UK-based market participants compared to those operating under international standards. Where possible, pursuing international interoperability will prevent market fragmentation and reduce the risk of regulatory arbitrage, fostering a unified and efficient regulatory environment that helps the UK maintain its competitive edge in the international crypto market. As divergent international approaches emerge, the UK must position itself as a central hub that holds liquidity in a diverse range of robust cryptoassets issued worldwide.