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FCA’s Consultation Paper on Cryptoassets: Key Insights and Implications

On 23 January 2026, the UK’s Financial Conduct Authority (FCA) published Consultation Paper 26/4 (the CP), addressing essential aspects of how cryptoasset firms will be required to adhere to FCA Handbook requirements as the regulatory framework expands. The CP outlines the regulatory landscape that these firms will navigate, highlighting various obligations and standards that will soon apply to them.

Overview of the Consultation Paper

The CP discusses several critical elements, including the application of the Consumer Duty, the FCA’s approach to Redress and Dispute Resolution (DISP), the Conduct of Business Standards Sourcebook, the use of credit in crypto purchases, training and competence requirements, regulatory reporting obligations, safeguarding rules for client assets, treatment of retail customer collateral, and guidance on location policies.

Notable Points in the CP

1. Consumer Duty Application:
   The FCA emphasizes that the Consumer Duty will apply to cryptoasset firms similarly to how it applies to traditional retail-facing firms. They are also seeking feedback on non-Handbook guidance that aims to clarify the Duty’s application within this emerging asset class.

2. Access to DISP:
   The CP proposes that consumers engaging with regulated cryptoasset firms will have access to the Financial Ombudsman Service. This includes eligible consumers residing outside the UK. However, the FCA does not intend to expand the Financial Services Compensation Scheme to cover cases where a cryptoasset firm cannot meet its liabilities.

3. Conduct of Business Obligations:
   A key proposal is to extend the Handbook definition of ‘designated investment business’ (DIB) to cover future crypto regulated activities. This means that rules surrounding DIB will also extend to these new activities, mandating compliance with existing standards related to client disclosures, communications, categorization, promotions, agreements, and appropriateness. Additional conduct requirements will be introduced in a new CRYPTO sourcebook.

4. Credit Use for Purchases:
   Interestingly, the FCA has chosen not to prohibit retail clients from using credit, including credit cards, to purchase cryptoassets. This decision may influence consumer behavior and market dynamics significantly.

5. Training and Competence Requirements:
   Firms engaging in newly regulated crypto activities for retail customers that also offer traditional financial services will need to comply with existing training and competence (TC) requirements. However, the FCA’s current proposal does not extend these TC requirements to firms exclusively focused on crypto activities that do not have corresponding traditional finance operations.

6. Regulatory Reporting Regime:
   The CP establishes that cryptoasset firms will be subject to the existing regulatory returns regime, which will include new proposed reporting rules focusing on operational resilience and third-party reporting requirements. Additionally, the FCA is developing specialized reporting frameworks tailored for the crypto sector.

7. Client Ownership Rights:
   The FCA proposes a method for firms safeguarding clients’ cryptoassets to protect ownership rights through a trust structure. This structure might allow for the co-mingling of client and firm cryptoassets when other services are provided alongside custody, with specific guidelines in place. It also details conditions under which client crypto can be removed from the trust.

8. Custody Regime for Specified Investment Cryptoassets:
   A custom custody regime for ‘Specified Investment Cryptoassets’ (SICs) is introduced. SICs encompass assets that qualify as both a cryptoasset and specified investments (like equities or bonds), regardless of their digital or non-digital nature.

9. Cryptoasset Trading Platforms:
   The CP reaffirms the FCA’s stance on permitting the operation of a Cryptoasset Trading Platform (an activity requiring regulation) through a foreign entity branch in the UK, which could enhance access to global liquidity and yield better outcomes for clients.

Next Steps

Stakeholders are invited to submit their comments and feedback by 12 March 2026. This engagement is crucial to shaping the final regulatory framework that will govern the cryptoasset landscape effectively.

How AI legalese decoder Can Assist

In navigating this complex regulatory landscape, professionals in the cryptoasset sector can greatly benefit from AI legalese decoder. This intuitive tool aids in deciphering the intricate language used in legal documents, simplifying compliance requirements, and helping firms understand their obligations under the FCA’s proposals with ease. By transforming complicated legal jargon into plain language, AI legalese decoder empowers firms to make informed decisions while ensuring adherence to regulatory standards. This capability is particularly significant as firms prepare to implement the upcoming changes brought forth by the FCA. Moreover, leveraging such technology not only enhances efficiency but also fosters a proactive approach in managing legal and compliance challenges within the ever-evolving cryptoasset domain.

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