- FCA Consultation Paper 26/4 applies the Consumer Duty and conduct rules to most regulated crypto services.
- Crypto firms will fall under FCA complaint rules and the Financial Ombudsman, but not FSCS coverage.
- The FCA plans tighter governance, safeguarding, and UK entity requirements for crypto firms.
The UK Financial Conduct Authority has published FCA Consultation Paper 26/4, providing further detail on how its existing regulatory framework will apply to newly regulated cryptoasset activities. The consultation forms part of the UK’s developing cryptoasset regime and focuses on how key sections of the FCA Handbook will be adapted for crypto firms operating in or targeting the UK market.
Under FCA Consultation Paper 26/4, the regulator proposes applying the Consumer Duty to crypto firms in the same way it applies to other FSMA-authorised firms. The duty will cover most cryptoasset services offered to retail consumers, though it will not apply to trading between participants on authorised cryptoasset trading platforms or to admissions and disclosure activities.
The FCA clarifies how the duty applies across crypto markets, including expectations around transparency, product understanding, and fair value. Firms distributing crypto products in the UK will remain responsible for meeting these standards, even where the product manufacturers are outside UK regulation. The FCA also highlights the need for effective consumer support, particularly during events such as wallet restrictions or staking disruptions.
Complaints, Ombudsman Access, and Compensation
The consultation confirms that crypto firms will be subject to standard FCA complaint-handling rules. In addition, customers will gain access to the Financial Ombudsman Service, allowing eligible disputes to be escalated for independent resolution.
However, FCA Consultation Paper 26/4 does not extend Financial Services Compensation Scheme (FSCS) coverage to regulated crypto activities. As a result, consumers will not receive statutory compensation for crypto investment losses if a firm fails.
Conduct Rules and Safeguarding Requirements
The FCA proposes aligning crypto conduct standards closely with those applied to traditional investments. Parts of the Conduct of Business Sourcebook will apply directly, while other requirements will be moved to a dedicated Crypto handbook.
On safeguarding, the FCA confirms that client money rules will apply to firms holding funds in connection with crypto activities. New safeguarding rules under CASS 17 will cover both qualifying cryptoassets and specified investment cryptoassets, replacing existing custody rules where applicable.
Governance, Reporting, and International Firms
FCA Consultation Paper 26/4 introduces limits for enhanced oversight under the Senior Managers and Certification Regime, based on asset values held by stablecoin issuers and custodians. The FCA also outlines a phased approach to regulatory reporting, with new crypto-specific returns introduced gradually.
For overseas firms, the FCA proposes requiring a UK legal entity in most cases. While limited flexibility may exist for trading platforms using UK branches, safeguarding and other regulated services would remain tied to UK-established entities.
Related: UK’s FCA Plans to Block Borrowed Funds for Crypto Purchases
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