FCA consultation on stablecoin issuance and custody

Why should I read this?

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

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

This briefing considers the issuance and custody consultation CP25/14. See also our client briefing on CP25/15 “FCA consultation on a prudential regime for cryptoasset firms”.

In CP25/14 the FCA consulted on proposed rules and guidance for the activities of issuing a qualifying stablecoin and safeguarding qualifying cryptoassets, including qualifying stablecoins.  The consultation paper follows discussion paper DP23/4 “Regulating cryptoassets Phase 1: Stablecoins” on the FCA/PRA’s proposed approach to regulating stablecoins, which may be used for payments.  Note that, since DP23/4 was published, the UK Government has dropped the phased approach, under which stablecoins would have been regulated before other cryptoassets, in favour of introducing regulation to all types of cryptoasset at the same time.

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 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 HM Treasury’s draft legislation.  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 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 remain 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 stablecoins are to set appropriate standards that are proportionate and bring certainty so that consumers will be able to place trust in qualifying stablecoins.  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 stablecoin issuance and cryptoasset custody proposals?

Scope of the proposals

The proposals in CP25/14 include rules and guidance covering:

• requirements for qualifying stablecoin issuers
• requirements for qualifying cryptoasset custodians

The FCA are seeking to regulate stablecoins to:

• facilitate and settle transactions with cryptoassets
• act as an on-ramp to, or off-ramp from, the cryptoassets ecosystem
• facilitate and settle institutional or wholesale transactions, including in a tokenised environment
• act as a means of cross border payments
• in the future, serve as a means of payment for retail goods and services

The UK government has not made a final decision as to whether to introduce a central bank digital currency (CBDC). However, it would appear that it is envisaged that any UK CBDC would sit alongside fiat currency backed stablecoins as cryptocurrency acceptable for payments in the UK financial system.

Extending the regulatory perimeter will bring many qualifying stablecoin issuers and qualifying stablecoin custodians within FCA regulation under FSMA (as opposed to the Money Laundering Regulations (MLRs))[1] for the first time, and will require firms to satisfy and continue to satisfy the Threshold Conditions in order obtain authorisation.  To assist firms with this transition, the FCA have a pre-application support service(PASS).

Requirements on qualifying stablecoin issuers

Stablecoin issuers will

• need to be FCA authorised to carry on the regulated activity of issuing qualifying stablecoins
• need to ensure qualifying stablecoins are backed on a 1:1 basis with secure, liquid assets, held in a statutory trust with a third party custodian (i.e. the custodian cannot be in the same legal group as the issuer) for the benefit of holders of the qualifying stablecoins
• need to offer cash redemption at par to all holders of qualifying stablecoins on a T+1 basis, with any fees charged for redemption commensurate with the operational costs incurred. This may be an issue for some issuers in that
  • currently many issuers of fiat-referenced stablecoins only permit wholesale or institutional stablecoins to redeem their coins directly
  • some issuers currently charge high fees or set high minimum redemption amounts, which in practice means retail holders can only trade their stablecoins on secondary markets should they want to exchange them for cash, usually having to do so at a discount to par/face value
• be prohibited from passing on interest paid on the backing assets to stablecoin holders to ensure that stablecoins do not have the characteristics of investment products
• need to disclose their redemption policy and the composition of the assets backing the qualifying stablecoin
  • at least every three months
  • all disclosures must be clear, fair and not misleading

The FCA are seeking to create a regulatory framework which gives consumers and markets the confidence that issuers of stablecoins will at all times be able to fulfil redemption requests.  The backing assets must be held with an unconnected custodian to limit the possibility of contagion should the qualifying stablecoin issuer fail.

The FCA are seeking to create circumstances in which consumers have access to sufficient information to make decisions based on a clear understanding of their rights and the risks involved in holding and using qualifying stablecoins.  In practice, many consumers are going to look no further than the issuers being authorised and regulated by the FCA, rather than making their own informed decision about the level of any attendant risk.  By ensuring that qualifying stablecoins are backed 1:1 by liquid assets held independently of the issuer, is seeking to limit the circumstances in which consumers might incur losses (e.g. in the event of a redemption run on a stablecoin exhausting its liquid reserves, as happened to Tether).

Eligible assets for backing pools

The assets that will be acceptable as backing assets are:

• on demand deposits, which must constitute a minimum of 5% of the backing assets
• government treasury debt instruments that mature in one year or less

In certain circumstances backing assets may also include:

• public debt with a maturity of more than one year
• assets, rights or money held as a counterparty to a repurchase agreement or reverse repurchase agreement
• limited money market funds

Reconciliations of backing assets must take place at least daily.  On reconciliation either:

1. shortfalls must be topped up and excesses removed; or
2. qualifying stablecoins must be minted or burned to ensure parity is maintained.

Asset safeguarding

For the purposes of custody and safeguarding, stablecoins will be dealt with under the FCA’s proposals for the custody and safeguarding of all kinds of qualifying cryptoassets.[2]

Custodians of qualifying cryptoassets will be required to:

• segregate client cryptoassets from their own
• hold those qualifying cryptoassets on behalf of clients in a trust
• have accurate books and records of clients’ cryptoassets holdings
• have adequate controls and governance to protect clients’ cryptoassets holdings

These proposals are intentionally framed to avoid a repeat of the consumer losses following the FTX Group collapse, in which poor safeguarding practices, co-mingling of the firm’s and clients’ assets, lack of accurate record-keeping and poor governance were factors in the collapse and subsequent losses suffered by clients.

Next steps

Both consultations closed on 31 July 2025. 

Cryptoasset activities

During 2025 and Q1 2026 there will be further consultations on proposed cross-cutting conduct and firm standards requirements that will apply to qualifying stablecoin issuers, qualifying cryptoasset custodians and other cryptoasset firms, including rules on:

• governance, including SMCR

• systems and controls, including operational resilience and financial crime

• FCA Supervision Manual

• the application of Consumer Duty

Following consideration of responses to these consultations, the FCA’s final rules and guidance will be set out in Policy Statement(s), expected to be published in 2026 ahead of implementation.

References

[1] Currently cryptoasset firms are regulated by the FCA only for the purposes of anti-money laundering (AML) and counter-terrorist financing (CTF) under the MLRs.

[2] Qualifying cryptoassets are cryptoassets that are fungible and transferable. These include stablecoins, but exclude some other forms of cryptoassets (including those that are already regulated as specified investments, including tokenised e-money and tokenised deposits).

Related articles in our stablecoin and cryptoassets regulatory series

• Bank of England consult on regulations for systemic stablecoins
• FCA consultation on a prudential regime for cryptoasset firms

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.