FCA consultation on a prudential regime for cryptoasset firms

Why should I read this?

The FCA has held two consultations on the regulation of stablecoins:

• Consultation paper CP25/14 “Stablecoin Issuance and Cryptoasset Custody”
• Consultation paper CP25/15 “A prudential regime for cryptoasset firms”

This briefing considers the consultation on the prudential regime for cryptoasset firms contained in CP25/15. See also our client briefing on CP25/14, "FCA consultation on stablecoin issuance and custody”.

In CP25/15 the FCA are consulting on the prudential rules they will apply to issuers of qualifying stablecoins and those providing custody of such stablecoins. They intend to set appropriate and proportionate standards, to bring certainty so that firms and consumers will be able to place trust in qualifying stablecoins.  The consultation paper does not include proposed requirements for firms carrying out payments using qualifying stablecoins.

The FCA are seeking to create a market that works well for consumers, encourages effective competition and enhances market integrity, just as they would for any other product.  Among the outcomes they are seeking is to minimise the use of cryptoassets within the regulatory regime for fraud, money laundering, terrorist and proliferation financing or any other criminal activities.

The FCA have set out their plans in a roadmap infographic.

See our previous client briefing for further background on the regulatory regime to be applied to cryptoasset firms more generally:

• UK: HM Treasury and FCA propose new regulatory regime for cryptoassets

What is a qualifying stablecoin?

Qualifying stablecoins are defined in draft legislation which will expand the UK regulatory perimeter to encompass cryptoasset by adding to and amending the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.  They are cryptoassets which seek to maintain their value against a fiat currency by the issuer holding, or arranging for the holding of, fiat currency or fiat currency and other assets.  A fiat currency for these purposes is a government-issued currency, such as GBP or USD.

Stablecoins are designed to be stable, money-like instruments and qualifying stablecoins have certain features and use cases that require protections for stability.  As well as single currency stablecoins, the FCA are consulting on whether they should permit multicurrency stablecoins.

The FCA continue to maintain that most cryptoassets are high risk, speculative investments and consumers should be prepared to lose all their money if they buy them.  However, the FCA’s proposals relating to qualifying stablecoins are to set appropriate standards that are proportionate and bring certainty, so that consumers will be able to place trust in qualifying stablecoins as an asset class.  The intention is to enable stablecoins to operate as trusted money-like instruments and to ensure there are no additional barriers to holders obtaining the monetary value of their qualifying stablecoins.

What do I need to know about the proposals for a prudential regime for cryptoassets?

Scope of the proposals

In CP25/15, the FCA are consulting on proposed prudential rules and guidance for firms seeking authorisation and regulation for the activities of issuing a qualifying stablecoin and safeguarding qualifying cryptoassets, including qualifying stablecoins. 

At the same time as developing new prudential rules for regulated cryptoasset activities, the FCA have also been establishing an integrated prudential sourcebook that brings together core prudential requirements which will be common across different types of firms they regulate for prudential purposes. These rules will be contained in an integrated prudential sourcebook called COREPRU. Regulated cryptoasset firms (including issuers of qualifying stablecoins) will be the first to become subject to the requirements in COREPRU.

The sector-specific prudential regulations applying to firms undertaking regulated activities related to cryptoassets will be set out in a new sourcebook, CRYPTOPRU.  Firms subject to CRYPTOPRU will be known as CRYPTOPRU firms.

Allocation between COREPRU and CRYPTOPRU of prudential regulation applying to CRYPTOPRU firms

Own funds – definition and composition of capital

The FCA are consulting on:

• the definition and types or ‘tiers’ of capital that will qualify as regulatory capital for CRYPTOPRU firms, known as ‘own funds’, including specific deductions that need to be made from own funds
• prior FCA permissions required to count certain items as regulatory capital
• prior FCA permissions that are required to reduce regulatory capital
• the minimum proportions in which own funds must be held to meet the own funds requirements at individual firm level

In common with the requirements applicable to other FCA-authorised firms (e.g. MiFID investment firms), own funds for CRYPTOPRU firms will comprise:

• Common Equity Tier 1 (CET1) capital
• Additional Tier 1 (AT1) capital
• Tier 2 (T2) capital

The FCA’s definition of own funds prescribes certain deductions and filters for the different tiers of capital to make sure that a firm measures its own funds in a way that reflects its ability to absorb losses in a variety of stress events.

Prior permissions required from the FCA for CET1 capital

CRYPTOPRU firms will need prior permission from the FCA to issue capital instruments which it intends to count towards their CET1 capital.  Subsequent issues of further CET capital instruments in substantially the same terms need only be notified to the FCA. This is comparable to the regime already applicable to a number of FCA authorised firms.

Own funds requirement

The FCA’s proposed framework is structured in a similar way to the requirements for FCA investment firms, and will be prescribed in FCA rules.

The minimum own funds requirement (OFR) will be the higher of the following components:

• permanent minimum requirement (PMR)
• fixed overhead requirement (FOR)
• K-factor requirement (KFR)

PMR - permanent minimum requirement

PMR is determined by the regulated activity the CRYPTOPRU firm undertakes:

FOR - fixed overhead requirement

The FOR calculation represents a minimum amount of capital that a CRYPTOPRU firm would need to absorb losses if it winds-down or exits the market. 

The FOR will be equal to one quarter of a CRYPTOPRU firm’s relevant expenditure in the previous year, calculated from figures in its most recent audited annual financial statements.  If these are not available, a CRYPTOPRU firm may use unaudited financial statements until audited annual financial statements are available.

KFR - K-factor requirement

The third component of a CRYOTOPRU firm’s own funds requirements is a variable activity-based requirement.  The K-factor requirements are either activity or exposure based.  Which K-factors will apply to an individual CRYPTOPRU firm will depend on the activities it undertakes, with the amount of each requirement growing with the scale of business undertaken.

The K-factor for qualifying stablecoin issuers would be the K-factor for qualifying stablecoin in issuance (K-SII), which will be equal to 2% of the average qualifying stablecoin in issuance (calculated by reference to the average month end total amount of stablecoin in issuance, which the issuer is liable to redeem, in the previous nine months (discounting the most recent three months)).

The K-factor for those safeguarding qualifying cryptoasset (K-QCS) will be calculated as 0.04% of a cryptoasset custodian’s average qualifying cryptoassets safeguarded (calculated by reference to the average month end total amount of qualifying cryptoassets safeguarded in the previous nine months (discounting the most recent three months)).

Liquid assets requirement

The FCA are proposing minimum liquidity requirements for CRYPTOPRU firms and the types of assets that firms can hold to meet them.

BLAR

All CRYPTOPRU firms must meet the basic liquid assets requirement (BLAR), an amount equal to one third of a firm’s fixed overheads requirement.

This will need to be met with core liquid assets, including coins and banknotes, short-term deposits at a UK bank, assets representing claims on or guaranteed by the UK government or the Bank of England (for example UK gilts and Treasury bonds) and/or units or shares in a short-term regulated money market fund, or in a comparable third country fund.

ILAR

Firms carrying out the regulated activity of issuing a qualifying stablecoin must meet the issuer liquid assets requirement (ILAR), a level of cash deposits required to account for price volatility in the backing asset pool, calculated in accordance with a formula. 

The ILAR applies in addition to a firm’s BLAR. ILAR will be calculated by a formula to be set out in CRYPTOPRU 6 and based on the residual maturity, the state issuer and the coupon for each government debt security.

ILAR can only be met by instant access deposits denominated in the currency of the stablecoin to which it relates.

If a firm issues multiple qualifying stablecoins, the relevant ILARs are cumulative.

Concentration risk

The FCA is proposing to require firms to guard against concentration risk, which is the potential for loss if a firm is overly exposed to one or more counterparties or type of asset.

CRYPTOPRU firms should consider:

• a practical definition of what constitutes a material concentration in line with its risk tolerance
• adequate documentation and regular review of their concentration risk policy for ongoing appropriateness
• regular monitoring of the composition of backing assets against any potential concentration (where the firm is an issuer)
• timely and accurate management information on concentration risk

Next steps

Both consultations closed on 31 July 2025. 

Prudential regulation

In due course the FCA will consult on applying prudential rules to firms safeguarding qualifying cryptoassets while also offering additional services, such as operating a trading venue or staking, as well as prudential rules for other cryptoasset activities.

Related articles in our stablecoin and cryptoassets regulatory series

• Bank of England consult on regulations for systemic stablecoins
• FCA consultation on stablecoin issuance and custody

How Eversheds Sutherland can help

We offer specialised advice on the safekeeping of cryptoassets, exchanges, and compliance with international regulations. Our services include guidance on custody models and infrastructure for cryptoassets, as well as advice on legal and regulatory aspects, including AIFMD and UCITS Directives. We support investment managers, custodians, and token issuers with regulatory frameworks, and assist with security mechanisms and using cryptoassets as collateral. Additionally, we apply traditional custody principles to new technology models to safeguard business interests. Our cybersecurity team collaborates with our award-winning cryptoassets team to protect assets and mitigate cyber risks.