FCA targets financial resilience in crypto: new rules for capital, liquidity and risk

Introduction

On 28 May 2025, the Financial Conduct Authority (FCA) published a second consultation paper (the Consultation Paper) on proposed prudential rules for qualifying stablecoin issuers (Issuers) and qualifying cryptoasset custodians (Custodians).

The structure and nature of the proposed prudential rules draw heavily on the existing regulatory capital framework for financial services firms that operate in traditional financial markets with rules on minimum capital, liquidity, risk management controls, concentration risk, and in due course, Internal Capital Adequacy and Risk Assessments (ICARA) and reporting.    

 

Prudential Regulation

The FCA intends to establish a tailored prudential regime, which will require cryptoasset firms to maintain financial resources that are adequate in both amount and quality for the business it undertakes, at all times.

The new rules will be set out in a new COREPRU module in the FCA’s integrated prudential sourcebook, which will include the baseline rules applicable to firms across sectors. The FCA also proposes to establish and maintain sector specific prudential requirements for firms undertaking regulated cryptoasset activities in a new sourcebook known as CRYPTOPRU.

The consultation paper does not cover all aspects of the prudential regime for Issuers and Custodian but includes rules on the following areas:

• Own funds:  There will be three tiers of capital, tier 1 capital (CET1), additional tier 1 capital (AT1) and tier 2 capital (T2), which will be known as “own funds”. Firm will be required to deduct certain items from “own funds” (e.g., intangible assets, tax reserves etc), and obtain prior permissions from the FCA to count certain items as regulatory capital, or to reduce regulatory capital.  

• Composition of Own Funds: The FCA is proposing that firms hold own funds in the following proportions:
  
  • CET1 ≥ 56% of total own funds requirement.
  • CET1 + AT1 ≥ 75% of total own funds requirement.
  • CET1 + AT1 + T2 ≥ 100% of total own funds requirement

The FCA clarifies that these are minimum levels and it is entirely possible and normal that a firm may choose to rely entirely on ordinary shares and retained earnings (which are CET1 capital) to meet their own funds requirement.

To prevent artificial inflation of a firm's balance sheet, the FCA proposes that cryptoassets held by the issuing firm, or held by a connected party (e.g. group entity or employer) are not included in these calculations (unless they are regulated, backed stablecoin). The same approach is proposed if the firm or a connected party controls the supply of the cryptoasset.

• Calculation: A firms minimum own funds requirement will be the higher of: (a) the permanent minimum requirement (PMR);  (b) the fixed overhead requirement (FOR); and (c)  (b) the K-factor requirement (KFR). For stablecoin issuers, the FCA has sought to align the requirements with those applicable to e-money issuers. Requirements for custodians will be aligned to those that apply now to investment firms. 
• PMR: The FCA is proposing a base minimum requirement of own funds of GBP350 thousand for stablecoin issuers, and GBP150 thousand for crypto custodians. If a firm carries out both activities, the higher amount will apply.  
• FOR: Firms will be required to maintain capital to cover ongoing fixed overheads, which should be equal to one quarter of the firm’s annual fixed overhead expenses in the previous year (calculated from figures in its most recent audited annual financial statements).  As a firms expenses grow, the FOR capital amount will increase. The FCA explains that the purpose of the FOR is to ensure that firms can “withstand short term shocks and/or wind down its business in an orderly manner”.
• KFR:  The KFR is intended to help address the potential for harm arising from a firm’s ongoing operations.  The K-factor capital requirements will be either activity or exposure based. For example, 
• For stablecoin issuers, the proposed K-factor is 2% of the total value of stablecoins in circulation, which aligns with the capital buffer for e-money issuers.
• For custody providers, the proposed K-factor is 0.04% of the total value of client cryptoassets safeguarded, which aligns the capital charge on custody assets for investment firms.
• Liquidity Requirements: In addition to complying with the capital requirements, firms will be required to hold a minimum amount of own funds in liquid assets (e.g., cash or high-quality liquid securities) to meet short-term obligations. This is referred to as the Basic Liquid Assets Requirement (the BLAR) and Issue Liquid Asset Requirements (ILAR).
• The BLAR will be:
• One third of the amount of its fixed overheads requirement, and
• 1.6% of the total amount of any guarantees provided to clients.
• The FCA explajns that the ILAR must be met with on demand deposits. The ILAR will be in addition to the BLAR. The aim of the ILAR would be to ensure stablecoin issuers can top up the backing asset pool using their own resources in the required timeframe of T+1 where they identify a shortfall (please see our other client briefing).  
• The amount a firm will be required to hold to meet the ILAR will depend on the precise mix of non-cash assets held in the backing asset pool.
• The FCA is proposing that the ILAR is calculated by applying a specific charge for the value of each asset in the backing asset pool.
• Liquidity Assets Composition: The proposed rules state that liquid assets can consist of any of the following: (a) short-term deposits at a UK bank, (b)  assets representing claims on or guaranteed by the UK government or the Bank of England (e.g., UK gilts and Treasury bonds), and (c) units or shares in a short-term regulated money market fund, or in a comparable third country fund. Assets belonging to a client e.g. subject to CASS would not be eligible.
• Concentrations Risk:  Concentration risk refers to the potential for loss if a firm is overly exposed to one or more counterparties or type of asset. Firms will be required to  monitor and control all their relevant sources of concentration risk by establishing sound administrative and accounting procedures supported by robust internal controls. For example, accounting procedures could identify and record counterparties and their associated level of earnings, measure them against internally agreed limits and report this information through governance arrangements. The firm can then decide whether to adjust its business accordingly.

The FCA intends to publish future consultation papers to cover: (a) requirements for cryptoassets firm groups, (b) PMRs and KFR rules for activities not covered in the consultation paper, (c) sector-specific concentration risk requirements, (d) ICARA, and (e) public disclosure.

 

Next Steps  

Market participants will have until 31 July 2025 to respond to this Consultation Paper.  

In line with the FCA cryptoassets roadmap, the new cryptoassests regime is expected to go live in 2026.

Issuers and Custodians should assess their current capital and liquidity positions against the proposed new rules. Firms will need to assess whether there will be any capital shortfalls ahead of 2026 implementation, and prepare for potentially higher requirements following future risk assessments.