UK FCA Opens Public Consultation on Stablecoin and Crypto Custody Regulations

The United Kingdom’s Financial Conduct Authority (FCA) has opened a public consultation on new rules for stablecoins and cryptocurrency custody, marking a significant step toward establishing a clear regulatory framework for digital assets in the country.

In a request for comment issued on May 28, the FCA described its proposals as “the latest milestone on the road to crypto regulation.” The draft rules reflect input gathered from previous industry roundtables and consultations. David Geale, executive director of payments and digital finance at the FCA, emphasized the agency’s commitment to fostering innovation without compromising market confidence:

“At the FCA, we have long supported innovation that benefits consumers and markets. At present, crypto is largely unregulated in the UK. We want to strike a balance in support of a sector that enables innovation and is underpinned by market integrity and trust.”

As part of its efforts to oversee stablecoins, the FCA is coordinating with the Bank of England. Sarah Breeden, Deputy Governor of the Bank of England, stated:

“For those stablecoins that expect to operate at systemic scale, the Bank of England will publish a complementary consultation paper later this year.”

Keeping Stablecoins Stable

The FCA said its proposed rules are designed to ensure that stablecoins maintain their peg to the reference currency. Issuers must clearly explain how reserve assets are managed and are encouraged to appoint independent custodians to safeguard those reserves. One of the core requirements is that users must be able to redeem stablecoins at face value:

“We propose to require issuers to provide holders with the right to redeem qualifying stablecoins at par value with the reference currency, irrespective of the value of the backing assets portfolio, with a payment order placed to an account in the name of the holder at the latest by the end of the business day following receipt of a valid request.”

Breeden noted that the FCA’s work is part of a larger strategy to shape the UK’s stablecoin framework.

Strengthening Crypto Custody

In addition to stablecoin regulation, the FCA outlined new expectations for companies offering crypto custody services in a separate discussion paper. These rules aim to safeguard users’ assets and ensure constant accessibility:

“The FCA's proposals would require firms providing crypto custody services, who have responsibility for keeping consumers’ crypto safe, to ensure they are effectively secured and can be easily accessed at any time.”

The proposed measures also aim to mitigate the risk and consequences of business failures in both the stablecoin and custody sectors. These developments come on the heels of UK Chancellor of the Exchequer Rachel Reeves’ recent announcement of a “comprehensive regulatory regime” intended to position the UK as a global leader in the crypto space.