FCA Proposes New Rules for Stablecoins and Crypto Custody

The UK Financial Conduct Authority (FCA) has taken a significant step towards establishing a comprehensive regulatory framework for stablecoins and crypto custody services. On May 28, the FCA launched a public consultation on proposed rules aimed at ensuring the stability and transparency of stablecoins, as well as the security of crypto custody services.

David Geale, the executive director of the FCA, highlighted the agency's dual mandate to foster innovation while maintaining market integrity and consumer trust. "We need to strike a balance in favor of a sector which permits innovation and is based on market integrity and trust," Geale stated. This initiative is part of the UK's broader efforts to develop a robust regulatory regime for crypto assets, positioning the country as a leading digital finance center.

The proposed regulations for stablecoins focus on ensuring that these digital assets maintain their value and provide transparency in how backing assets are managed. Issuers of regulated stablecoins would be required to allow for redemption at par value and maintain reserves with independent custodians. Consumers must be transparently informed about how reserves are handled, and redemptions must be settled by the end of the next business day following a successful request. The Bank of England will also play a role in regulating stablecoins, particularly those operating at a systemic scale, with a supportive consultation to be released later this year.

In addition to stablecoins, the FCA has outlined new regulations for crypto custody firms. These regulations include safeguarding requirements to ensure that digital assets are secure and accessible. Custody businesses must implement systems to mitigate risks of loss or access failure, thereby maintaining consumer confidence and asset integrity. The aim is to prevent potential business failures in the crypto custody sector from having a broader impact on the market.

The FCA's consultation paper seeks input from the public and various stakeholders, with comments due by July 31, 2025. The final rules are expected to be published in 2026. This regulatory push is part of the UK government's broader strategy to establish a clear and comprehensive framework for cryptoasset firms, positioning London as a hub for compliant digital finance. The UK is also looking to finalize its regulatory framework for stablecoins and crypto custody, ensuring that the sector can thrive while protecting consumer interests.