CryptoUK Response to FCA Consultation Paper 25/25: Application of FCA Handbook for Regulated Cryptoasset Activities (Part 1)
CryptoUK and its members welcome the opportunity to comment on the Consultation Paper regarding the FCA’s approach to regulating cryptoassets with respect to the application of the FCA Handbook. CryptoUK is the UK’s self-regulatory trade association representing the cryptoasset sector. Our members comprise over 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 (download the full response here). 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 the future cryptoasset regulatory regime, as follows:
- Appreciation for engagement, consumer protection, and greater regulatory clarity: Our members are appreciative of the FCA’s clear and consistent willingness to engage with the industry and its participants. We see the regular meetings and consultations demonstrating a commitment to broad and deep public and private sector cooperation. We also welcome the protection of consumers more broadly in the economy, as well as within our industry. Furthermore, our members acknowledge that the Crypto Roadmap and its milestones are evidence of a commitment to truly progress greater regulatory clarity within the UK. Within this appreciation, we also wish to express some of our concerns in the next points that may hinder or slow this progress.
- Piecemeal approach: At a high level, feedback from our members has been that the FCA’s recent piecemeal approach to consulting and discussing proposed rules has proven to be frustrating. This approach, in our view, is evidenced by the delayed consultation on custody rules for rSICAs in CP 25/14, the lack of elaboration on how the Consumer Duty may interact with the A&D rules proposed earlier this year, and particularly throughout this Consultation Paper (which we flag in our responses).
- We appreciate this piecemeal approach comes from a sensible desire to fully understand the benefits, risks, and potential outcomes of specific technologies, proposed rules, and how these factors may interact, particularly given the myriad variations of technologies in the crypto space.
- However, this approach makes it incredibly difficult for both industry participants and the public to keep track of what rules are being consulted on separately and why, as well as understand what exactly is being proposed in each consultation and the context in which those proposals are meant to exist. Consequently, there is not only a significant risk that consultation responses will be less robust and holistic, but also that the development and the application of the rules will be difficult to understand and comply with where they are drafted in successive batches rather than as a singular set of draft rules.
- We are also concerned about the application of regulations that are currently under large scale review to the nascent cryptoasset regulatory regime; in our view, these should not be included until the consultations and potential changes are settled.
- We would urge the FCA to consolidate outstanding points and reduce the total number of separate consultations wherever possible. At the very least, a summary table setting out such outstanding points and the current status or timelines for each would be greatly appreciated as part of the next consultation in the FCA’s proposed cryptoasset regulatory timeline.
- Over-granular rules: A general comment more specific to this Consultation Paper is the over-granularity of some of the proposed rules, which may make it difficult for smaller firms without significant legal resources to understand and comply with upon implementation. While we appreciate that this detailed approach arises from a desire to ensure rules are proportionate and specific to individual activities and asset types, we note there is a risk that this may ultimately make the overall cryptoasset regime more convoluted and difficult to comply with in practice. Examples of where this arises are flagged throughout our responses, but at a high level include the carve out for qualifying UK stablecoins from the RMMI categorisation, and the needlepoint approach to applying and disapplying individual sections of COBS.
- Need for sector specific guidance: As a result of the two issues flagged above, and also the general approach of applying most of the existing regulatory regime “as-is” onto the cryptoasset space, our view is that there is not enough clarity as to how the FCA envisions some of these rules applying in practice, and consequently how firms would be expected to implement the rules in due course. While the Consultation Paper does feature some excellent examples of such guidance, for example how the FCA envisions the outsourcing rules to apply to different types of cryptoasset service providers, we would urge the FCA to consider providing further sector specific guidance in a codified manner, ideally through inclusion in the PERG manual, or at the very least as separate publications (e.g. Dear CEO letters, etc.).
We thank the FCA for the opportunity to share these views and would welcome the chance to engage further on any points raised in our response. We additionally thank CMS for their support and assistance.
To read our detailed recommendations and analysis, please click here to download the full policy response.
