The UK Financial Conduct Authority (FCA) has published Consultation Paper 26/4, detailing how its existing regulatory framework will apply to newly regulated cryptoasset activities. This consultation forms a critical part of the UK's developing cryptoasset regime, focusing on adapting key sections of the FCA Handbook for firms operating in or targeting the UK market.
The cornerstone of the proposal is the extension of the Consumer Duty to crypto firms, applying it in the same manner as to other FSMA-authorised firms. This duty mandates that crypto services provided to retail consumers are transparent, easily understood, and offer fair value. However, it will not apply to activities like trading on authorized platforms or admissions and disclosure activities.
For consumer protection, crypto firms will be required to handle complaints under the FCA's standard complaint-handling rules, and customers will gain access to the Financial Ombudsman Service for independent dispute resolution. A significant exclusion is that the Financial Services Compensation Scheme (FSCS) will not cover crypto activities, meaning consumers will not be compensated for losses if a firm fails.
The FCA also proposes aligning conduct rules for crypto firms with those for traditional investment firms, with parts of the Conduct of Business Sourcebook applying directly. Specific rules will be shifted to a dedicated Crypto Handbook. New safeguarding measures, including client money rules under CASS 17, will apply to firms holding client funds.
The consultation introduces enhanced oversight for firms dealing with stablecoins. Issuers or holders of large amounts of stablecoins will face additional regulatory scrutiny based on asset values to ensure standards for consumer protection and financial stability are met.
Furthermore, the FCA proposes that most overseas crypto firms targeting the UK market must establish a UK legal entity to ensure compliance with UK regulations, particularly for safeguarding and offering regulated services, though some flexibility may exist for platforms operating through UK branches.
