The opening salvo from the FCA on the UK cryptoasset framework

On 24 November 2024 the UK Financial Conduct Authority (the FCA) published a Roadmap setting out its timeline to developing a tailored regulatory regime for cryptoassets and associated activities (the Roadmap). This new regime will sit alongside the existing cryptoassets anti-money laundering and financial promotions regimes and is expected to be in place by 2026.

On 16 December 2024, the FCA published its first discussion paper on cryptoassets regulation since the publication of the Roadmap, which focuses on establishing an admissions and disclosures regime; and a cryptoassets market abuse regime (Cryptoassets DP). The FCA will publish a series of discussion papers, consultations papers, policy statements and final rules during 2025, covering such matters as trading platform rules, intermediation rules, lending rules, staking, prudential (capital and liquidity) requirements, custody, and the regulation of stablecoin activities and services

HM Treasury will introduce the legislative framework for this new cryptoasset regime, which is expected to be published during 2025. 

This client briefing provides a summary of the CryptoAsset DP.

We have also prepared an EU alert which analysis the key elements of the Regulation (EU) 2023/1114 of 31 May 2023 on markets in crypto-assets (MiCA) which applied from 30 December 2024. Please see our EU alert for further details.

 

Cryptoassets definition

The FCA refers to the fact that in June 2023, the UK introduced a broad definition of "cryptoassets" to mean "any cryptographically secured digital representation of value or contractual rights that (a) can be transferred, stored or traded electronically; and (b) that uses technology supporting the recoding or storage of data (which may include distributed ledger technology".

It is noted that the UK government will narrow the scope of the definition of cryptoassets in due course for specific cryptoassets regulatory frameworks and regimes.

For the purposes of the  Cryptoasset DP, the term cryptoassets means spot cryptoassets such as stablecoins and unbacked cryptoassets (e.g., Bitcoin and Ether). It is not intended to apply to cryptoassets that qualify as "specified investments¹" (e.g., certain types of tokenised financial instruments, and security tokens), which  fall within the scope of the current UK FSMA regulatory framework.

 

Admissions and Disclosures

The Cryptoassets DP includes an overview of a proposed admission and disclosures framework,  which broadly mirrors the updated UK prospectus regime and covers the following points,:   

1. admission documents: The person who initiates the application for admission (the Preparer) to trading on a cryptoasset trading platform (the CATP) will be responsible for producing and publishing any required admission documents.
• The admission document must meet a "necessary information test" (to be defined in legislation) designed to allow the consumer to make an informed decision about whether to invest in the cryptoasset. The FCA may also impose additional prescriptive disclosure requirements to support this objective
• The Preparer will be held liable for consumer losses if the admissions document did not include necessary information (e.g., features, prospects, risks, rights, and obligations attached to the cryptoassets, outline of underlying technology supporting the cryptoassets and details about the persons seeking admission to trading on the CATP); and
• The Preparer will also be responsible for the accuracy of disclosures in the admissions document and will be held liable for reckless and misleading statements (subject to certain statements being given "protected forward-looking status").
2. due diligence: The CATP will  undertake appropriate due diligence on the "issuer", any other relevant persons and the disclosures set out in the admission documents. The CATP will also  make the summary of such due diligence available to the public;
3. admission process: the CATP will have the power to approve or reject the application for admission to trading on the CATP; and
4. filing of admission documents: If the application is accepted, the admission documents would be filed on the National Storage Mechanism.

The  FCA will subsequently consult on the application of the consumer duty to cryptoassets, including on how firms should communicate with retail customers as well as the applicable of capital and liquidity requirements for issuers and CATP.

The FCA notes that HM Treasury is expected to introduce legislation relating to admissions and disclosures, which will:

1. prohibit offers of cryptoassets to the public unless an exemption applies (e.g., offers made to qualified investors or made via admission of trading on a CATP);
2. regulate the admission or the request for admission of a cryptoasset to trading on a CATP;
3. regulate the communication of a public offer of a cryptoassets, or the admission or proposed admission of a cryptoasset to trading on a CATP; and
4. requiring certain disclosure of information to be made to investors relating to a public offer of cryptoassets.

 

Market Abuse Regime

The Cryptoassets DP outlines a framework and approach which is designed to  prevent, detect, and disrupt cryptoasset market abuse (referred to in the paper as MARC). The MARC is intended to mirror certain aspects of UK MAR (prohibit insider dealing, market abuse, improper disclosure of inside information), but with amendments to reflect the nature of cryptoassets.

The Cryptoassets DP outlines the FCA's proposed "principles-based" market abuse regime, which states that:

1. there will be a prohibition on insider dealing, unlawful disclosure of inside information; and market manipulation (including the dissemination of false or misleading information);
2. the scope of the regime will be limited to capture behaviours related to cryptoassets admitted to trading on a UK regulated CATP. Note: The Cryptoassets DP does not explore the territorial scope of the regime (e.g. trading in cryptoassets by non-UK market participants). It remains to be seen whether this will be addressed at a later date;
3. the person who requests admission to trade a cryptoasset on a CATP will be responsible for publicly disclosing "inside information" (e.g., this could be the issuer or the CATP). This could be disclosed via a regulated information service or website;
4. inside information will likely consist of information that is precise in nature, non-public, related to a given cryptoasset and issuer; and could likely have a significant effect on the market price of the cryptoasset (e.g., information about (a) an upcoming admission of a cryptoasset on a CATP, and (b) pending client orders);
5. both CATP and intermediaries will be required to implement systems and controls to detect and prevent market abuse.
6. cross platform sharing between CATPs will be required to reduce fraud and prevent market abuse. The FCA is considering establishing a system to facilitate cross platform sharing of inside information.

Whilst the FCA does not expect market participants to submit suspicious activity or transactions reports to them, they are open to considering whether such disclosures should be made to the CATP. The CATP would investigate and determine whether any abuse has taken place and take action to "disrupt abusive activities under their own rules". The FCA may require CATPs to report "material" breaches to them and take necessary action.

The FCA expects the UK government to introduce legislation to:

• prohibit insider dealing in relation to cryptoassets with safe harbours and exceptions for legitimate behaviours (e.g., for coin burning);
• require disclosure of inside information relating to cryptoassets;
• prohibit market manipulation in relation to cryptoassets; and
• require persons who "operate a CATP" to be authorised and regulated by the FCA.

 

Next steps

Market participants have until 14 March 2025 to respond to the proposals in Cryptoassets DP. This is an important opportunity for market participants to actively engage with the FCA and place a role in shaping the UK cryptoasset regime to ensure that it is fit for purpose.

 

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¹ As defined in Part III of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.