Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
FCA Consultation on Crypto Regulatory Framework
Crypto Regulation | May 8, 2025
Image: Freepik/jcstudio
UK’s FCA Publishes New Rules to Regulate Crypto Platforms, Lending, Staking, and DeFi
The Financial Conduct Authority (FCA) just dropped Discussion Paper 25/1 'Regulating Cryptoasset Activities' (83 page PDF) for industry and stakeholder feedback, following the HM Treasury’s draft rules shared on April 29, 2025 that propose bringing crypto activities under the Financial Services and Markets Act. The FCA is now seeking feedback on how to regulate trading platforms, intermediaries, lending, staking, and decentralized finance. The discussion proposals look to reduce consumer harm, improve market fairness, and align with global standards.
Select Discussion Topics and Questions (see DP25/1)
1. Crypto platforms must be registered in the UK be risk neutral
Firms that run crypto trading platforms and serve UK retail customers will need FCA approval. Platforms will not be allowed to trade against their own customers. All trades must be handled through fair and consistent rules. The platform must stay neutral and cannot lend to customers or carry risk between buyers and sellers.
- Should matched principal trading be allowed or does it create unfair conflicts? That's where platforms act as the middle party in trades (see DPP25/1 Question 8)
- What are the risks if a platform operator also trades for itself outside the platform? Should this be allowed? (Question 9)
- What are the risks if an affiliate of the platform is trading on or off the same platform? (Question 10)
2. Foreign market access through branches and UK subsidiaries
Foreign crypto platforms that want to serve UK customers must have a UK branch and/or a UK-based legal entity. The FCA is not extending the Overseas Persons Exclusion to crypto.
See: UK FCA Plans Full Crypto Licensing Regime by 2026
- What challenges do overseas firms face following UK trading and market abuse rules through their UK branches, and are there better ways to manage the risks? (Question 1)
- What are the challenges of requiring both a branch and a legal entity? (Question 2)
- What rules should apply when a foreign platform offers trading to UK retail customers via a UK branch? (Question 3)
3. Trading bots, algorithms, and direct retail access
Many retail investors use bots or automated strategies. The FCA wants platforms to take responsibility for monitoring this activity and managing any risks that come with it.
- What extra rules should platforms take on when giving direct access to retail users? (Question 4)
- How can platforms manage automated and algorithmic trading strategies by retail or professional traders? (Question 5)
4. Market makers and the need for formal oversight
Platforms often rely on market makers to provide liquidity. Some market makers are tied to the platform operator or its affiliates. The FCA wants stronger controls and greater transparency.
- Should platforms be required to set up formal agreements with market makers? (Question 6)
5. Token listings and conflicts of interest
Some platforms be able to list tokens that they or their affiliates have issued. This can create conflicts of interest and make it harder to ensure fair trading. The FCA is considering rules that would separate the platform operator from the token issuer.
See: UK’s Regulatory Crypto Roadmap from Sandbox to Mainstream
- What are the risks when platforms list tokens they are financially connected to? (Question 11)
6. Credit and settlement must be handled carefully
The FCA says neutral platforms should not act as lenders or clearing houses; they should not extend credit or carry risk between users. However, platforms must still make sure that trades are settled safely and on time.
- Should platforms be allowed to offer credit or act as settlement agents? (Question 12 and 13)
- How should the concept of settlement be defined in crypto markets? (Question 14)
7. Transparency and record keeping
The FCA proposes clear rules on pre trade and post trade transparency. Platforms may be required to publish order book data and store transaction records for five years. This could include transactions by individual retail users.
See: UK vs. Canada: A Tale of Two Different Crypto Consumers
- Should any platforms be exempt from transparency rules? (Question 15)
- What are the challenges of tracking trades involving retail customers? (Question 16)
- What data standards should be used? (Question 17)
- How can platforms coordinate on chain and off chain data records? (Question 18)
How to Respond and Outlook
The FCA is asking for feedback on discussion paper 25/1 by 13 June 2025. You can respond by using the form on the FCA website or email: dp25-1@fca.org.uk. These ideas and subsequent discussions could influence regulators around the world. Canada’s fintech sector and policymakers should review how the proposed UK rules could affect global competitiveness, partnerships, and innovation pathways.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
 |  |  |
|---|---|---|
 |  |  |
Leave a Reply