UK regulation of specific activities in the crypto market has come a step closer, with the launch of a new consultation by the Financial Conduct Authority (FCA).

Published on 2 May, the discussion paper invites stakeholders to provide input on a range of proposals around six key areas of the crypto industry: cryptoasset trading platforms (CATPs), intermediaries, lending and borrowing, staking, decentralised finance (DeFi) and the use of credit to buy crypto products.

The paper marks the latest stage of the FCA’s Crypto Roadmap, unveiled in November, where the watchdog set out a timeline of planned stakeholder engagements on a number of crypto matters, up to the publication of final policy statements next year.

Mitigating risks

In its largest section, the paper positions CATPs as vital hubs of crypto market activity and outlines proposals to defend end users against an array of key risks.

Those include the sale of unsuitable or illegal products and services to UK clients, regulatory disparities between domestic and overseas platforms, the potential inability of UK investors to access or withdraw their assets, and low levels of liquidity. Other risks include operators engaging in proprietary trading against their own customers and inefficient or unfair markets arising from poor transparency – plus consumer harms stemming from discriminatory trading, information asymmetries or unmanaged conflicts of interest.

Looking at intermediaries, the paper’s proposals mainly address risks around consumer understanding. For example, some providers do not make it clear and prominent to their audiences whether they are acting in a principal, agent or arranger capacity, or how they differ from a CATP. Indeed, some brokers may design their client interface to look just like that of a trading platform. Further proposals in this field aim to tackle risks around order handling, execution quality, fragmented liquidity and pricing, conflicts of interest and opaque, off-platform transactions.

While crypto lending and borrowing enjoyed consistent growth from 2017 to 2022, the paper notes that the market’s progress was hampered by issues around risk and liquidity management. 

Compounding them were poor practices, such as platforms issuing their own tokens and incentivising consumers to buy and hold them, while manipulating token price and supply. At the same time, a lack of prudential controls and consumer protection rules spawned widespread losses. 

Consequently, lending and borrowing now form a “relatively small” segment of the overall UK crypto market. However, the paper acknowledges that demand could rise again over time. With that in mind, its proposals in this area aim to mitigate risk factors around issues such as loss of ownership, creditworthiness, counterparty risk, speculative yield generation and conflicts of interest with platform tokens.

In staking, users typically lock their assets to a blockchain for validation for an agreed period of time, in return for financial incentives or rewards. Among other risks, the paper says that users may not fully understand the validation process or the technology behind it. That may lead to confusion over availability of and access to rewards, or potential fees and penalties. It proposes that staking firms must provide users with detailed information on their products and any related risks in a ‘key features’ document.

Turning to DeFi, the paper notes that extensive automation, reliance on smart contracts and potential code vulnerabilities could hamper operational resilience within business models in the field. Plus, there may not always be an easily identifiable entity for users to raise issues with. As such, the FCA will carry out a parallel body of work with DeFi firms to help them understand their regulatory obligations.

Finally, the FCA is seeking views on whether it would be appropriate to ban crypto firms from accepting credit as a means for consumers to buy cryptoassets. According to the paper, the watchdog is considering a range of restrictions, including on the use of credit cards and credit lines from e-money firms to directly fund crypto purchases.

Clear signal

In a statement, FCA Executive Director of Payments and Digital Finance David Geale said: “Crypto is a growing industry. Currently largely unregulated, we want to create a crypto regime that gives firms the clarity they need to safely innovate, while delivering appropriate levels of market integrity and consumer protection. Our aim is to drive sustainable, long-term growth of crypto in the UK. We’re asking whether we have got the balance right.”

Crucially, the paper arrived against the backdrop of the latest phase of a national drive towards statutory crypto regulation. Just days before it emerged, HM Treasury issued the long-awaited draft legislation The Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025. In a news release, the Treasury said that the package of new rules would bring crypto exchanges, dealers and agents into the regulatory perimeter, “cracking down on bad actors while supporting legitimate innovation.”

Announcing the statutory instrument at a special event to mark UK Fintech Week, Chancellor Rachel Reeves said: “Through our Plan for Change, we are making Britain the best place in the world to innovate – and the safest place for consumers. Robust rules around crypto will boost investor confidence, support the growth of fintech and protect people across the UK.”

For the Treasury, the announcement sends a clear signal: “Britain is open for business – but closed to fraud, abuse and instability.”

ICAEW Senior Financial Services Regulatory Manager Polly Tsang tells Insights that it is encouraging to see the FCA and government taking proactive steps to regulate digital assets.

“Clear, proportionate regulation is essential to ensure the UK remains competitive and is not left behind in this rapidly evolving sector,” she says. “With the right framework, balancing firms’ ability to innovate with robust consumer protection, the UK has a real opportunity to lead globally in digital assets. Comprising experts across financial reporting, tax, regulation and law, ICAEW’s Digital Assets Working Party looks forward to engaging with the FCA’s paper and HM Treasury’s draft legislation to shape the development of UK crypto regulation.”