UK FCA Proposes Comprehensive Regulatory Framework for Cryptoasset Custody

Strategic Insights -

The Financial Conduct Authority (FCA) is set to establish a comprehensive UK regulatory framework for cryptoassets through a series of consultations. The latest consultation, CP25/14, focuses on the safeguarding of qualifying cryptoassets and their means of access, adapting the FCA's Client Assets Sourcebook (CASS) principles to the specific risks and structures of crypto custody. The proposed regime aims to mitigate risks of consumer harm, asset loss, and market disruption, while ensuring clear records and trust structures are in place to evidence and protect client ownership rights.

Key Takeaways:

  • The FCA proposes that firms conducting custody of qualifying cryptoassets must be authorized by the FCA under the Financial Services and Markets Act (FSMA) and be subject to ongoing FCA supervision.
  • Firms must segregate client cryptoassets from their own to ensure clear ownership and insolvency protection, with both individual and omnibus wallets permitted for holding client assets.
  • Firms must hold client assets as a bare trustee under a non-statutory trust and maintain accurate, up-to-date books and records that clearly evidence client ownership, independently of blockchain data.
  • Reconciliations between internal records, on-chain wallet data, and any third-party custodian records must be carried out daily to ensure client holdings are accurately maintained.
  • Firms must implement robust, resilient systems that support secure custody, real-time record accuracy, and timely reconciliation, including controls for the secure generation, storage, and handling of private keys.
  • Firms remain fully responsible for compliance with custody requirements, even where functions are outsourced, and must establish oversight mechanisms to monitor third-party performance and ensure adherence to safeguarding standards.
  • The FCA will continue shaping the UK's cryptoasset custody regime through further consultations between late 2025 and Q1 2026, with the consultation on CP25/14 closing on 31 July 2025 and final rules expected in 2026.

Statistics:

  • The FCA proposes that firms must segregate client cryptoassets from their own to ensure clear ownership and insolvency protection.
  • Firms must maintain accurate, up-to-date books and records that clearly evidence client ownership, with daily reconciliations required to ensure client holdings are accurately maintained.
  • The FCA will continue shaping the UK's cryptoasset custody regime through further consultations between late 2025 and Q1 2026.
  • The consultation on CP25/14 closes on 31 July 2025, with final rules expected in 2026.

Sources:

  • Financial Conduct Authority (FCA) consultation document, CP25/14
  • Financial Services and Markets Act (FSMA) 2000
  • Client Assets Sourcebook (CASS)