The FCA published a discussion document on cryptocurrency asset regulation, aiming to apply a new legal framework by 2026. The regulations will include listings, information disclosure, and anti-market abuse measures.
On December 16, the Financial Conduct Authority (FCA) of the United Kingdom published a discussion document on establishing a legal framework for cryptocurrency assets, marking the latest step in efforts to regulate this sector. The legal framework is expected to come into effect in 2026, significantly expanding the FCA's authority compared to its current oversight, which focuses solely on Anti-Money Laundering and promotions.
According to the plan, the FCA will oversee various activities related to cryptocurrency assets, including trading, stablecoin management, intermediary operations, and custody services. This indicates a significant shift in the UK government's approach to the digital asset market, moving from caution to proactive management and regulation.
Source: Andre Omietanski New regulations and potential impacts
A notable point in the FCA's proposal is the restriction on the public offering of cryptocurrency assets. Accordingly, offerings will be prohibited except for certain exceptions, such as assets listed on a cryptocurrency trading platform (CATP) or only available to qualified investors, such as institutional investors.
The regulation aims to protect individual investors from the potential risks of the cryptocurrency market while facilitating the participation of professional investors in the market safely and transparently.
For exempt assets, the FCA requires strict due diligence and information disclosure steps before being approved for listing by a cryptocurrency trading platform (CATP). The disclosures must meet certain standards; otherwise, the FCA may exercise its authority to demand compensation in case of violations of the financial promotion regime. This is an important step towards enhancing transparency and accountability in the cryptocurrency market, enabling investors to make informed investment decisions.
The FCA also mentions applying a civil regime against market abuse, which already exists in traditional finance, to the cryptocurrency asset sector. However, the agency acknowledges that direct application will be challenging and will require appropriate adjustments. The FCA also stated that their proposals are influenced by recommendations from the International Organization of Securities Commissions (IOSCO) regarding cryptocurrency and digital asset markets.
Another important issue raised in the discussion document is the sharing of information between trading platforms. Although the FCA does not plan to create a specific mechanism for this, they encourage platforms to share information about suspicious market abuse behaviors.
For example, if a platform detects suspicious behavior from a user, they may share this information with other platforms where that user has an account. Sharing information will help platforms make more informed decisions in risk management and investor protection.
The legal framework plan for cryptocurrencies was first announced by the UK Treasury in February 2023. By November 2024, the government confirmed it would continue to implement the plan but with an adjusted roadmap, eliminating the phased approach.
The FCA will hold separate consultations on stablecoin regulation and is accepting feedback from stakeholders until March 14, 2025. The FCA's proactive consultation with the community demonstrates its efforts to build a comprehensive and market-relevant legal framework.