We responded to the Financial Conduct Authority’s (FCA) consultation paper CP25/14 ’Stablecoin Issuance and Cryptoasset Custody’ 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.
Overall, we support the FCA’s work to bring qualifying stablecoin issuance and custody within the regulatory framework. A sound regulatory framework for stablecoins is essential to allow their potential to be realised sustainably, while proportionately managing the associated risks.
Key messages:
- Proportionate application of existing frameworks and clarity on AML: The FCA should align the regulatory framework for stablecoins with rules for traditional financial instruments, avoid overly rigid rules that stifle innovation and clarify how existing obligations, such as the Consumer Duty and Anti-Money Laundering (AML) requirements, will apply to stablecoins.
- International competitiveness and interoperability: To remain globally competitive, the UK must move swiftly to implement an ambitious and attractive regulatory regime for stablecoins while seeking interoperability with international frameworks like the GENIUS Act and MiCA. The regime should accommodate varied stablecoin structures, including multi-currency models and decentralised arrangements, with clear guidance on redemption expectations.
- Redemption, foreign exchange (FX) risk and use of alternatives to statutory trusts: Practical challenges exist with strict T+1 redemption requirements, particularly outside GBP contexts. The FCA should permit backing assets held in other currencies where the issuer has appropriate risk management in place. We do not support the mandatory use of statutory trusts; alternative protections, such as frameworks similar to the Client Asset Sourcebook (CASS) regime for holding client assets or buffers, may offer more operational flexibility.
- Outsourcing framework: To avoid duplication and complexity, we suggest that the existing Senior Management Arrangements, Systems and Controls (SYSC) framework should remain the primary mechanism for regulating stablecoin outsourcing arrangements, unless there is a clear and specific risk that cannot be addressed through existing rules.
- Safeguarding: The FCA should align its requirements for safeguarding and segregation of client assets with the existing requirements that apply to custodians under CASS 6. The definition of “safeguarding” must reflect functional differences, and safeguards should focus on client outcomes rather than the legal form (e.g., trust vs. segregation). Liability and remediation should be contractually based and not unnecessarily extended by regulation.
- Operational burden and proportionality in custody rules: Proposals around custody—especially record-keeping, reconciliation, and segregation— should be proportionate to risk and reflect how cryptoassets are held and managed in practice. Daily reconciliations and extensive notifications could impose undue burdens, particularly on smaller firms. Existing authorised custodians should benefit from streamlined authorisation processes and recognition of equivalent standards.
Use the buttons below to download or read the full submission online.