The United Kingdom is quickening the pace on the new crypto regulatory regime. The Financial Conduct Authority (FCA) published three papers in quick succession in May 2025: a discussion on key policy positions ( DP25/1) and two consultations on detailed rules ( CP25/14 and CP25/15). This blog focuses on CP25/15. Please see our separate blogs on the other proposals by going here and here.
CP25/15 sets out proposals for certain aspects of the prudential requirements for crypto firms. There will be another consultation on additional rules. The new requirements are largely modelled on the existing rules for investment firms. In short, an authorised cryptoasset firm must hold the required amount of regulatory capital on an ongoing basis. This is referred to as the "own funds" requirement.
This own funds requirement has three main components:
Capital Instruments
Authorised cryptoasset firms can only use instruments within the following three classes to meet their capital requirement:
- Common equity tier 1 (such as ordinary share).
- Additional tier 1 (such as certain preference share).
- Tier 2 (such as subordinated loan).
Each class has detailed criteria that must be met. There are also composition requirements – e.g. CET1 must not be less than 56% of the total capital held.
Minimum Amount
The minimum amount of capital that must be held at all times will be the higher of the following three elements:
- The permanent minimum requirement. This varies depending on the cryptoasset regulated activity, e.g. £350,000 for issuing stablecoin.
- The fixed overhead requirement. This is one quarter of total expenditure in the previous year. Total expenditure must be calculated in the specified manner.
- The K-factor requirement. The "K-factor" is to reflect the firm's operational risk, and it varies for each cryptoasset regulated activity, e.g. for issuing stablecoin, the K-factor is 2% of the average stablecoin in issuance. The K-factor must be calculated each calendar month.
Liquidity Requirements
These are to ensure authorised cryptoasset firms have sufficient liquid assets at all times. These comprise two elements:
- The basic liquid asset requirement (BLAR), which applies to all authorised cryptoasset firms and can only include permitted assets (such as cash, short-term United Kingdom bank deposits and certain regulated money market funds).
- The issuer liquid asset requirement (ILAR), which applies only to stablecoin issuers (in addition to BLAR). The ILAR is in summary a specified charge (%) of each type of assets in the backing assets pool (e.g. for short-term United Kingdom government debt with 3-month maturity and 5% coupon, the charge is 0.2%). The ILAR must be met by on-demand bank deposits.
For firms that are already FCA regulated and wish to expand into the crypto sector, these capital requirements would be familiar. For the current unregulated cryptoasset firms, it may take time and efforts to familiarise themselves with these concepts and while the rules are still in the consultation stage it may be desirable to plan ahead.
The consultation is open for feedback untill 31 July 2025.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
