CryptoUK (“we”) and its members welcome the opportunity to comment on the Consultation Paper regarding the FCA’s approach to regulating stablecoin issuance and cryptoasset custody. CryptoUK is the UK’s self-regulatory trade association representing the cryptoasset sector. Our members comprise 100+ of the leading companies across the sector and across the UK. Many of our members are also international and engage with regulators and policies on a global basis.

We have provided detailed answers to each question posed in the Consultation Paper within the Appendix. We seek to offer pragmatic and relevant observations about, and suggestions in response to the content within the Consultation Paper. However, at the outset, we would like to make a number of general / thematic comments about the Consultation Paper and the FCA’s broader approach to stablecoins and cryptoasset custody, as follows:

1. We generally agreed that the long-standing UK approach that relies on principles-based regulation is needed beyond the Consumer Duty; as part of that, we found many of the principles-driven approaches to be sensible. However, where we did disagree, it was often when specific rules were suggested that appeared to be more onerous than or inconsistent with existing regulation for traditional finance (“tradfi”) arrangements;
2. We find that some definitions are still incomplete or may have unintended consequences–e.g., “custody”, “custodian”, and “money-like instrument”; in particular, the industry has weighed in very clearly and consistently that the custody-related definitions may be inadequate or have unintended consequences, and should be revisited;
3. We note that the trust structures are potentially problematic and recommend additional consultation and consideration before applying those concepts in this context;
4. We support robust disclosures, reconciliations, and audits, where appropriate, but remain concerned that these may be overly prescriptive or misapply the concept of an audit in a manner that could create confusion to retail users, in particular;
5. We are concerned that the piecemeal approach to consultations may give HMT and the FCA incomplete views from the industry that are based only on a part of the proposed regulatory framework at any one time. While we understand why the consultations are being conducted in this way, a significant risk is that input provided by the industry or cryptoassets stakeholders in isolation would not be the same feedback provided if the same respondents could see how the full array of proposals would fit together and function more broadly. We urge regulators to revisit consultations once the fuller picture of the entirety of the regulatory framework becomes clearer;
6. We acknowledge that other jurisdictions are also creating or have created robust stablecoin regulatory frameworks, and encourage the UK to consider clear reciprocity arrangements;
7. We continue to recommend that policymakers fully consider the role of taxation in shaping a coherent and supportive environment for digital assets. Tax policy has the potential to contribute significantly to market clarity, stability, and sustainable economic growth; it should not be treated as a siloed area separate from wider regulatory frameworks. In particular, the taxation of stablecoins remains an area of widespread confusion, often proving unnecessarily complex for retail participants and creating unintended barriers to adoption and compliance. We therefore urge all policymakers to engage regularly and meaningfully with professionals actively working in the cryptoasset and digital finance industry; and
8. We know the industry is ready for regulation and would appreciate the opportunity to respond fully as part of a collaborative dialogue; to this end our members would ask for further conversation on the points raised within, along with the opportunity to make further submissions where needed.

We thank you for the opportunity to respond to this Consultation Paper. We also wish to acknowledge the insights from our Working Group and the expert views of member firm, CMS.

Appendix

Consultation Questions:

1. Do you agree that the Consumer Duty alone is not sufficient to achieve our objectives and additional requirements for qualifying stablecoin issuers are necessary?

We agree that the Consumer Duty alone is not sufficient to achieve the FCA’s consumer protection, financial stability, and market integrity objectives in relation to the issuance of qualifying stablecoins. Requirements for stablecoin issuers should also reflect the unique risks and outcomes that are relevant to qualifying stablecoin issuers and holders, which requires broad industry input to ensure that they are fit for purpose.

Additionally, the Consumer Duty imposes cross-cutting rules requiring firms to act in good faith, avoid foreseeable harm, and enable customers to pursue their financial objectives. While this framework is important, it lacks the precision needed to deal with:

• The complex liquidity and redemption risks of stablecoins;
• Interdependencies between traditional finance and blockchain-based assets.
• The technological and operational risks arising from DLT; and
• Abuse vectors such as spoofing, layering, and systemic fraud using on-chain assets.

Further, while the Consumer Duty mandates that firms should support customer understanding by providing communications and disclosures that can be understood by target customers, it does not specify the type or frequency of disclosures needed for stablecoin users to assess risk and value. This is why clear disclosure requirements for stablecoin issuers are important.

We are also conscious that an overreliance on the Consumer Duty could result in some firms seeking to structure operations in a way that complies with broad outcomes based requirements but ignores the unique risks presented by the global, decentralised environment. Without stablecoin-specific guidance and principles tailored to stablecoin specific operations, firms could exploit the gaps in the Consumer Duty to operate in ways that are formally compliant, yet economically abusive (e.g. delayed redemptions, opaque asset structures, circular minting/redeeming through affiliates). The industry can work directly with the FCA to identify approaches that can help to close these and any other identified gaps.

We recognise that the Consumer Duty has a role to play in mitigating the risks of this activity, and as such we welcome any additional clarity on the FCA’s approach to the Consumer Duty in its forthcoming ‘Conduct and Firm Standards’ consultation.

2. Do you agree that issuers of multi-currency qualifying stablecoins should be held to similar standards as issuers of single-currency qualifying stablecoins unless there is a specific reason to deviate from this? Please explain why? In your answer please include:

• Whether you agree with our assessment of how multi-currency stablecoins may be structured, and whether there are other models.
• Whether there are specific rules proposed which do not work for multicurrency qualifying stablecoins, and explain why.
• Whether there are any additional considerations, including risks and benefits, we should take into account when applying our regulation to multi-currency qualifying stablecoins.

We answer i., ii., and iii., together below.

We broadly agree with the FCA’s principle of holding multi-currency qualifying stablecoin (“MCQS”) issuers to similar standards as single currency qualifying stablecoin (“SCQS”) issuers. Overall, we believe that the topic of multicurrency stablecoins requires more thought and consultation prior to putting in place firm regulations.

In specific response to iii., we believe that applying these standards effectively will require targeted calibrations, especially around:

• Redemption clarity and foreign exchange (“FX”) rate use
  • Recommendation: publish a clear redemption methodology, including how FX rates are sourced and how redemption in specific currencies is calculated.
• Backing asset composition and custody;
• Disclosure granularity and frequency
  • Recommendation: provide monthly disclosures for MCQSs, with FX composition, reserve values per currency, and details of any changes to the weighting or structure; and
• Stress-testing of FX risk, correlation breakdowns, and redemption behavior.

We also wish to note that the proposals do not specify whether there would be any restrictions on specific currencies. If the FCA has that in mind, then it would be helpful to provide that clarity here, and to ensure that any such restrictions are aligned with existing regulations.

3. Do you agree with our proposals for requirements around the composition of backing assets? If not, why not?

We agree with the expansion of backing assets to include money-market funds (MMFs) and reverse repurchase agreements. However, we do not support the inclusion of longer term government debt because we believe that this would expose the portfolio of backing assets to unnecessary duration risk.

Further, tokenised MMFs should be allowable if tokenised in a manner which would be aligned with the Basel Framework’s Bank for International Settlements (“BIS”) “SCO60” category 1a in relation to determining bank’s cryptoasset exposures (i.e., if they are directly tokenised rather than via an SPV structure). We would also note that paragraph 3.33 states that a firm should ensure they have the right skills and competence in managing the expanded asset class, but there is no allowance for suitable hedges that take into account the interest rate risk posed by the backing assets (e.g., the change in the dollar value of bonds, or Dollar Value of a Basis Point (“DV01”) in the backing portfolio). We believe that this should be permitted, as they are a key part of the typical asset manager’s skills and competencies.

Our members expressed varied views on the inclusion (or not) of algorithmically-backed stablecoins, for example, those which led to the Terra Luna failure in 2022. We noted that these were not expressly included in the CP. Some members expressed that they would prefer that this type of stablecoin be banned completely from the UK market. Other members cautioned against a blanket ban that may go too far and effectively prohibit otherwise well-designed stablecoins. This type of stablecoin could utilise algorithms appropriately to ensure asset liquidity and maximise issuer profitability responsibly, if supported by sound backing asset proposals. The consensus of our members is that if algorithmically-backed stablecoins are addressed within the final regulations, then a careful definition of the term should be developed with industry input, so as not to prohibit compliant, well-designed stablecoins.

4. Do you have any views on our overall proposed approach to managing qualifying stablecoin backing assets? Particularly: i) the length of the forward time horizon; ii) the look-back period iii) the threshold for a qualifying error.

While we broadly agree with the proposal to require that qualifying stablecoin issuers have an appropriate risk management framework to identify, measure and monitor risks in the backing asset pool, we have some reservations about the application of the proposed BACR calculation, insofar as it will be applied uniformly to all stablecoin issuers irrespective of the specific issuer’s redemptions data. As such, we do not agree that a backing assets composition ratio (“BACR”) calculation which imposes the same requirements across all stablecoins is generally appropriate. If the FCA intends to impose a BACR calculation requirement, we believe that this should be specific to the individual stablecoin, and be agreed with issuers on a case-by-case basis, based on a robust review of their specific redemptions data.

As an exception to this stablecoin-specific approach, we do believe that the proposed 180-day redemption look back period and a 110% threshold for a qualifying error are sensible as general guidelines across all stablecoins. Additionally, where there is less than 180 days of redemption data for the stablecoin, we do not believe that Daily Redemption Amount forecasts are an appropriate metric for calculating the BACR.  During this time there should be a minimum level of cash on hand for redemption risk set by the regulator (which we expect will typically be in excess of 5%).

5. What alternative ways would you suggest for managing redemption risk, which allow for firms to adopt a dynamic approach to holding backing assets?

We refer to our response to question 4 above, outlining an alternative stablecoin specific approach.

6. Do you think that a qualifying stablecoin issuer should be able to hold backing assets in currencies other than the one the qualifying stablecoin is referenced to? What are the benefits of multi-currency backing, and what risks are there in both business-as-usual and firm failure scenarios? How might those risks be effectively managed?

We support the notion of issuers being able to hold backing assets in other currencies. The benefit of this would be that it would allow them to operate a complete asset management approach, as permitted in other non-crypto asset asset management settings.

However, if issuers are permitted to hold other currencies, then the regulator should permit issuers to hedge currency/FX risk via derivatives, as issuer liquidity requirements alone would not be an appropriate mitigation to FX risk. Based on the current proposals, which do not include derivatives within the expanded backing assets, this would not be permitted. In this regard, we note that FX hedging is a basic risk management service provided within traditional finance. We do not see any reason why it should be excluded here or from any element of crypto asset management. In fact, we believe that all appropriate hedging strategies should be encouraged and permitted in the crypto asset management context in the UK, including within a stablecoin issuer’s management of its backing assets.

We note the potential relevance of K-Factors to this aspect of the proposals, and refer you to the CryptoUK response to CP 25-15 for a fulsome discussion of those matters.

7. Do you agree that qualifying stablecoin issuers should hold backing assets for the benefit of qualifying stablecoin holders in a statutory trust? If not, please give details of why not.

We recognise that the proposal is consistent with the FCA’s proposed changes in its approach for safeguarding e-money. However, our members had mixed views on this proposal. Although some members supported the notion that issuers should be required to utilise a trust structure that is protected/ring fenced in case of insolvency, other members were concerned that the industry is too nascent and innovative for a statutory trust to be appropriate at this stage, given the differences between cryptoassets. Members further explained that at a recent FCA-industry roundtable discussion, statutory trusts were noted to be atypical within custodial arrangements, and so their use here was questioned. There was further concern about the fact that if an entity holds its own backed assets, it would be both a trustee and a beneficiary.

8. Do you agree with our proposal that qualifying stablecoin issuers are required to back any stablecoins they own themselves? If not, please provide details of why not. 

Our members had varying views on this question. Some agreed, in short. Others did not agree and conveyed the concern that this proposal could lead to an inappropriate increase in or concentration of counterparty and/or credit risk. As a result, they noted that any backing directly by the issuer be permitted only for short periods.

Another member was concerned that the proposal was motivated by a worst case scenario wherein the issuer’s own holdings of its own stablecoins were hacked and stolen, and that the proposal, therefore led to an overreach. An approach that may be more proportionate is that there is no need for any backing before the stablecoin passes into the ownership of someone else–i.e,. if the issuer goes into insolvency, why should regulations be designed to ensure that they can claim part of the backing assets related to their own holdings? In short, the rationale for the proposal was not felt to be well-articulated.

9. Do you agree with our proposal to require third parties appointed to safeguard the backing asset pool to be unconnected to the issuer’s group? 

No, we do not agree with this proposal.

We believe that the risks of group conflicts of interest can be appropriately managed. In particular, these can be managed via the proposals that segregated assets are held in trust (see Questions 7 and 8), combined with appropriate regulatory oversight measures such as CASS audits.

While the FCA does not intend to restrict the number of third parties that an issuer can appoint to safeguard the backing asset pool, in reality firms will be restricted to those providers available in the market. If the number of providers is limited, then the proposal may have the unintended consequence of introducing inappropriate levels of counterparty and/or concentration risk. Further, the proposal could lead to excessive operational costs related to ensuring effective oversight of these third parties. We believe that, with appropriate governance and risk management of their connected entities, issuers can manage this safeguarding appropriately.

10. Do you consider signed acknowledgement letters received by the issuer with reference to the trust arrangement to be appropriate? If not, why not? Would you consider it necessary to have signed acknowledgement letters per asset type held with each unconnected custodian?

Yes, we consider these letters to be appropriate. We note that the proposal is  in line with the FCA’s proposed e-money safeguarding requirements.

11. Do you agree with our proposals for record keeping and reconciliations?  

Yes, we generally agree with these proposals.

12. Do you agree with our proposals for addressing discrepancies in the backing asset pool? If not, why not?

We recognise that appropriate guidelines for addressing discrepancies in the backing asset pool are crucial for upholding market integrity, consumer confidence, and orderly market conduct. We also acknowledge that insider knowledge of discrepancies could be exploited by issuers for self gain, at the expense of holders. For example, an issuer could dispose of their own stablecoin at par value on secondary markets prior to public disclosure of the discrepancy, and/or could buy up de-pegged tokens below par, anticipating the restoration of value after remediation. We agree with the need for monitoring and strong pre-emptive controls to detect and prevent such misconduct, and for regulations that identify and treat the trading on non-public information about the status of the backing asset pool as prohibited insider trading.

Our members broadly supported the proposals for addressing shortfall-specific discrepancies in the backing asset pool. They agreed that a robust approach to the required timeline for topping up is appropriate–i.e., within one business day.

However, our members held mixed views with respect to the proposals for removal of excesses. While they understand the FCA’s intention of quickly remediating the potential commingling of customer assets with those of the issuer (if the excess belongs to the issuer), they are concerned that this proposal is simply adopting the CASS model that does not actually fit this activity appropriately. Instead of requiring issuers to remove excesses, the excess assets charged on behalf of coin holders should remain in the issuance vehicle as a layer of protection for those same coin holders.

13. Do you agree with our proposed rules and guidance on redemption, such as the requirement for a payment order of redeemed funds to be placed by the end of the business day following a valid redemption request? If not, why not?

Our members held mixed views on these proposed rules and guidance. Some broadly agreed in principle, but also believed that it will be important to understand the practical details in the final requirements to ensure that these are workable and are not unduly onerous.

Our members also discussed a range of related issues, including:

• The fact that issuers may have to directly deal with redemption orders from many retail customers, may be operationally impractical and cause excessive burden on issuers.
  • Third-party intermediaries may therefore be necessary to support the redemption process.  They could allow the issuers some flexibility to determine reasonable conditions to access direct redemption with the issuer (e.g. minimum amounts, ensuring that there are enough channels for retail holders to redeem and that such minimum requirements don’t deprive retail holders of their redemption rights).
• The point at which the 1 business day timer starts to run is another aspect of the redemption process which may become operationally impractical for issuers without further clarification.
  • Paragraph 3.142 of the CP suggests that, in order to accommodate the situation where checks are required for holders seeking to redeem for the first time, the next business day requirement could be calculated from “the point at which the issuer has received all information required for them to carry out CDD or EDD checks as required”; and
  • There are several issues with this proposal:
    • The 1 business day time is shorter than that of other jurisdictions and could make the UK significantly less competitive as a result.
    • Also, receiving the CDD/EDD information is not the same as carrying out the checks and, while in many cases the checks can be completed fairly quickly, there will always be cases (especially if applying EDD, where further investigation is required). Further investigation often requires reaching out to the customer. If the 1 business day timer is running during this part of the process, then the timeline may not be achievable.
    • We suggest the following alternative approaches:
      • Align the timeline requirement with other jurisdictions; or
      • Have the timer start when CDD/EDD checks have been completed (although we recognise the risk that the redemption request could be delayed if the issuer or the intermediary takes several days to carry out the due diligence).

We also must note that some members were in strong opposition to the proposed requirement to offer direct redemption to all holders, regardless of the size of the particular holding on the basis that:

• Many stablecoin issuers use market intermediaries to act as market-makers and collate creation/redemption orders (mint/burn). This is akin to the authorised participant model in ETFs. This has the benefit of minimising the demand for creating and redeeming and ensuring that the issuer can do this quickly against a counterparty that has an existing relationship and doesn’t need onboarding; and
• Onboarding a new retail customer in order to redeem a small value of stablecoin would be disproportionate in terms of  the time and cost involved in the onboarding process . It makes greater sense for the customer to seek the redemption via its usual market intermediary.

14. Do you believe qualifying stablecoin issuers would be able to meet requirements to ensure that a contract is in place between the issuer and holders, and that contractual obligations between the issuer and the holder are transferred with the qualifying stablecoin? Why/why not?

Members pointed out that there are problems associated with transferring rights as such because transferring the contractual rights/obligations would only work where all possible transferees have already accepted the terms and conditions (T&Cs) within a closed network (which does not work if the stablecoin is to be universally transferable).

15. Do you agree with our proposed requirements for the use of third parties to carry out elements of the issuance activity on behalf of a qualifying stablecoin issuer? Why/ why not?

We agree with the proposed requirements for issuers to carry out due diligence on third parties before using them, and for third party contracts to set out clear roles and responsibilities. We also agree that the issuer should remain responsible for all activity that has been outsourced to third parties.

16. Do you agree with our proposals on the level of qualifications an individual needs to verify the public disclosures for backing assets? If not, why not?

Our members broadly agree in principle with these proposals. Although the cost of compliance may be a barrier to entry for some potential issuers as a result, to the extent this results in fewer more robust stablecoins, we believe that this would ultimately be consistent with the treatment of stablecoins as well-executed money-like instruments.

However, we do not believe that an expansive scope that, for example, includes the running ticker of issuance, is practical. Live tickers could be explicitly disclosed as unaudited or as not verified.

We would also like to note that the use of the term “audit” or “independent review” have specific meanings within formalised external audit processes and procedures. We would therefore strongly recommend that the FCA work closely with leading external audit advisory bodies and regulators (such as the FRC and the ICAEW) to ensure that they use the most precise and accurate terminology. Many things referred to as “audits” are not in fact a formal audit and should not convey unintentional equivalence as this could potentially mislead consumers.

17. Do you agree with our proposals for disclosure requirements for qualifying stablecoin issuers? If not, why not?

We generally support these proposals, especially the core disclosures in paragraph 3.172 of the CP, relating to the value and composition of backing assets, number of issued stablecoins, and the 1:1 reserve sufficiency statement. However, we would recommend more frequent disclosure, at least monthly, instead of quarterly. There are a number of reasons for this:

• The value and percentage composition of the backing asset pool is essential for users, market participants, and regulators to evaluate a stablecoin’s liquidity risk, credit risk, and stability. Asset composition can shift materially within a month, especially during periods of market stress or strategic reallocation by the issuer. For example, an increase in duration or exposure to less liquid instruments (e.g., CP or bank deposits) may significantly impact the speed and certainty of redemptions.
• Quarterly disclosures may therefore be too infrequent to reflect these dynamic exposures. Monthly reporting would create a better baseline for ongoing supervision and transparency, without imposing disproportionate operational costs;
  • Issuance data is critical for understanding supply dynamics, market saturation, and liquidity flows; and
  • A monthly attestation that the asset pool backs stablecoins 1:1 would serve three vital functions – i.e., provides assurance to holders that redemption rights are intact; creates a deterrent to mismanagement or over-issuance, especially in models where minting and redemptions are programmatic or permissionless; and supports early detection of deviations that may not trigger immediate public alerts but still merit regulatory attention.

We would also like to point out that other jurisdictions may have equivalent, stronger, and/or more frequent disclosure requirements. As a result, disclosures from those jurisdictions should be available to UK users of these coins, and considered equivalent (which may require a formal mutual agreement between jurisdictions).

18. Do you agree with our view that the Consumer Duty alone is not sufficient to achieve our objectives and additional requirements for qualifying cryptoasset custodians are necessary?

While we generally agree that the Consumer Duty alone is not sufficient, we are concerned that the definition of custodian in this context (with the consequential CASS-type requirements) is not necessarily aligned with the position for custodians in traditional finance.In particular, we think there should be an appropriate carve out from custodial requirements for assets taken under title transfer collateral arrangements.

We re-iterate (mutatis mutandis) the comments made to HM Treasury by the International Swaps and Derivatives Association (ISDA) in response to the draft Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025 (see ISDA response).

Specifically, the FCA’s client assets regime for cryptoassets should not affect standard collateral arrangements (both security interest and title transfer) and financing transactions, at least in respect of activity with professional clients. Further, in our view, most industry participants have expressed serious concerns with various elements of the definition or perimeter of the “custodian” or “custodial relationship.” We acknowledge that the FCA is providing proposals based on the draft legislation, but we would strongly urge HMT and the FCA to revisit the definition-related issues raised in that context by CryptoUK and others, and then re-consult on a narrower basis to ensure they are adequately addressed and that no unintended consequences result.

With the above observations in mind, we would like to request that the FCA clarify whether firms operating under title transfer arrangements — where legal title to the cryptoasset passes to the firm and is not held on behalf of another — fall within scope of the “custodian” definition in paragraph 4.7.  This would help confirm that custody-specific obligations (such as segregation and reconciliation) are not inadvertently applied to principal trading models.

To the extent there is a genuine custodial arrangement we concur that additional requirements beyond the Consumer Duty are warranted.

19. Do you agree with our proposed approach towards the segregation of client assets? In particular: 

• Do you agree that client qualifying cryptoassets should be held in non-statutory trust(s) created by the custodian? Do you foresee any practical challenges with this approach?

We agree that non-statutory trusts are preferred to statutory trusts to allow for appropriate and necessary business flexibility. However, we would also welcome confirmation from the FCA that the proposed segregation requirements — particularly the need to hold client qualifying cryptoassets in non-statutory trust structures — only apply where firms act as custodians on behalf of clients, and do not apply where cryptoassets are received under title transfer arrangements.

• Do you have any views on whether there should be individual trusts for each client, or one trust for all clients? Or whether an alternative trust structure should be permitted.

We did not answer this question given our previously stated concerns with the trust requirements more provided.

• Do you foresee any challenges with firms complying with trust rules where clients’ qualifying cryptoassets are held in an omnibus wallet?

We did not answer this question given our previously stated concerns with the trust requirements more provided.

• Do you foresee any challenges with these rules with regards to wallet innovation (eg the use of digital IDs) to manage financial crime risk?

We recommend that the FCA consult more broadly with industry on this question, along with the other government bodies concerned with financial crime risk. Our membership includes experts in this topic, and we would be glad to convene them to discuss this further with the FCA.

20. Do you agree with our proposed approach towards record-keeping? If not, why not? In particular, do you foresee any operational challenges in meeting the requirements set out above? If so, what are they and how can they be mitigated?

Yes, we agree with the proposed approaches toward record-keeping. We do not foresee any operational challenges in meeting the requirement to keep the types of records specified in the proposal. However, we note that the requirement to be able to evidence a  clients’ claim to any qualifying cryptoasset  “at any time” (as suggested in paragraph 4.40 of the CP), appears to imply a real-time record-keeping requirement, that may be possible, but costly to implement. We would be grateful if the FCA could clarify this proposal.

21. Do you agree with our proposed approach for reconciliations? If not, why not? In particular:

In principle we support the proposed approach to reconciliations, providing that it is not more onerous than that for tradfi, or operationally more difficult to implement (see our response below in this regard).

22. Do you foresee operational challenges in applying our requirements? If so, please explain.

The main operational challenges that would arise in relation to reconciliations relate to the fact that operations in cryptoasset transactions are “24/7”. This aspect of the crypto ecosystem can make it more operationally challenging than in tradfi to manage transactional or valuation cut-offs, as one key example. However, the language in the draft rules states that a firm must perform a qualifying cryptoasset reconciliation at least once each business day. This principles-based approach would allow firms the flexibility to align with their tradfi books, if preferred, as long as the firm chooses and documents a consistently-applied approach.

23. Do you foresee challenges in applying our proposed requirements regarding addressing shortfalls? If so, please explain.

It is unclear how it should be determined who is responsible for a shortfall. For example, paragraph 4.48 of the Consultation indicates that the custodian should notify the FCA and affected clients of the shortfall, and they should consider the cause of the shortfall as well as its rationale for reaching such a conclusion. We would be grateful for guidance in relation to how the cause of the shortfall should be established.

The proposals are also unclear in relation to the timeline in which custodians will be required to determine the cause of the shortfall. Custodians should be afforded reasonable time to make this determination, before being required to take the corresponding proposed actions to address this.

24. Do you agree with our proposed approach regarding organisational arrangements? If not, why not?

Yes, we agree.

25. Do you agree with our proposed approach regarding key management and means of access security?

Yes, we agree.

26. Do you agree with our proposed approach to liability for loss of qualifying cryptoassets? In particular, do you agree with our proposal to require authorised custodians to make clients’ rights clear in their contracts?

We agree with the FCA’s proposed approach: authorised custodians should make clients’ rights clear in their contracts, but otherwise the law as it stands provides an adequate and appropriate framework within which a custodian and its clients may agree the custodian’s liability; full, uncapped liability should not be imposed on custodian regulation.

27. Do you agree with the requirements proposed for a custodian appointing a third party? If not, why not? Do you consider any other requirements would be appropriate? If not, why not?

Yes, we agree.

28. Do you agree with our assumptions and findings as set out in this CBA on the relative costs and benefits of the proposals contained in this consultation paper? Please give your reasons.

We are unclear as to whether the survey for cryptoasset custody costs will have sufficiently captured firms that would be needing authorisation as cryptoasset custodians acting as ‘arrangers’ of cryptoasset safeguarding.

Additionally, we note the FCA’s acknowledgement that its cost estimates are subject to reporting inaccuracies and small sample size bias. . In our view, this only serves to emphasise the need for the FCA to engage with industry further to gather more credible data in relation to these proposals.

29. Do you have any views on the cost benefit analysis, including our analysis of costs and benefits to consumers, firms and the market?

We have strong concerns around the principle of only regulating the issuing of stablecoins from the UK.  We think that this may be inconsistent with the objective of supporting the growth of UK-based stablecoins.

Further, we question why the FCA assumes in its forecasting that issuers would choose to issue from the UK as opposed to operating from offshore (where there is a choice of alternative regimes). Also, it seems there is potential for consumer confusion if GBP stablecoins issued from abroad mingle with those issued from the UK that are under UK obligations.