UK Crypto rules taking shape

A QCDD is required before admission, subject to exceptions for UK-issued qualifying stablecoins, qualifying cryptoassets fungible with qualifying cryptoassets already admitted to trading on the CATP (with a QCDD already published), and where the qualifying cryptoasset will only be made available for qualified investors to trade. 

A Supplementary Disclosure Document (SDD) is needed for significant changes pre-admission. Where an SDD is subsequently published, purchasers will have the right to withdraw their acceptances. 

The FCA has proposed high-level general requirements and guidance on the format of the QCDD. The QCDD must be in English, and suitable for retail investors. The FCA suggests the QCDD should highlight: who is liable to pay compensation for misleading statements or omissions in the QCDD; that SDDs may be published; and any potential conflicts of interest involving the CATP operator. There will also be additional disclosure requirements where the qualifying cryptoasset seeks or purports to maintain a stable value.   

Further to DP24/4, the QCDD must also include a summary of key information which the FCA is consulting on.   

Persons responsible for a QCDD or SDD will be subject to the statutory liability and compensation provisions in the Cryptoasset Regulation, and the FCA rules (under CRYPTO 3.6) will specify who is responsible in different scenarios. 

Persons that are responsible may be liable for the content of the document and liable to pay compensation, where an untrue or misleading statement, or an omission from the QCDD or SDD has resulted in a customer suffering a loss in respect of the qualifying cryptoasset.   

The FCA proposes that the QCDD (or SDD) clearly states who is responsible for the document. Generally, the proposed rules provide that the person seeking admission of the qualifying cryptoasset will be responsible (both where they prepare the document or use a third party to produce the document) along with any other person who accepts responsibility and is stated in the QCDD/SDD.   

Where there is no clear issuer and the CATP admits the qualifying cryptoasset on its own behalf and prepares a QCDD, that CATP will be responsible and the QCDD will confirm this.   

A PFLS will need to meet the relevant content and format requirements that will be set out in CRYPTO 3.7.  

The FCA proposes that the use of PFLS will be voluntary, allowing persons issuing a QCDD or SDD to include certain forward-looking statements. The different liability regime reduces the risk of successful consumer compensation claims.  

The proposed regime will broadly follow the Public Offers and Admission to Trading Regulations 2024 (POATR) but will be adapted to the cryptoasset context.   

Where information is already required to be disclosed under Regulation 13(1) Cryptoasset Regulations, QCDD content rules or under a CATPs rules, this would not qualify as a PFLS.   

UK-issued qualifying stablecoins will be subject to a separate A&D regime so that authorised firms do not need to comply with two overlapping disclosure requirements.   

UK-issued qualifying stablecoins will need to produce the following forms of disclosure:  

• in the form of information on the issuer's website which is publicly available; and  
• a UK-issued qualifying stablecoin QCDD available on the issuer's website and on an FCA-owned centralised repository.  

Voluntary PFLS rules will not apply to issues of qualifying stablecoins.

The general Consumer Duty is disapplied for admissions activities relating to trading and public offers of qualifying cryptoassets. Instead, bespoke A&D rules will apply. These rules will apply regardless of whether the person engaged in the activities are approved persons.   

The A&D rules will include specific provisions on consumer understanding to ensure firms help consumers make informed decisions. Additionally, CATPs will be required to implement rules that require QCDDs to be presented in a way that supports consumer understanding.   

Issuers, offerors, and CATPs must publicly disclose inside information promptly unless a justified delay is recorded.  

Delayed disclosure may be made where immediate disclosure of inside information is likely to prejudice their legitimate interests, the delay is not likely to mislead the public and the confidentiality of the inside information can be ensured.  

The FCA proposes to provide rules and guidance on the application of LMPs and proposes that coin burning and crypto-stabilisation could be considered LMPs.   

Firms will not be considered to have engaged in market manipulation where their conduct is undertaken for legitimate reasons.   

Large CATPs (≥ £10 million annual revenue) must conduct on-chain monitoring.  

Smaller CATPs and intermediaries must maintain proportionate off-chain monitoring capabilities but are not required to undertake on-chain monitoring. However, smaller CATPs are encouraged under the rules to undertake on-chain monitoring. 

Issuers, offerors, and CATPs must maintain accurate insider lists. Proposed templates for insider lists are found in CRYPTO 4.12 and the templates include:  

• identity of individuals with access to inside information; 
• reasons for inclusion on the list;  
• date and time the individual obtained or ceased to have access to the information; and  
• crypto wallet addresses (if applicable).  

Regulation 32 of the Cryptoasset Regulations creates an obligation to share information to counter market abuse and enables the FCA to make rules as to how this obligation applies.  

The FCA proposes to introduce rules for large CATPs to disclose information to other large CATPs where:  

• they have reasonable grounds to suspect that cryptoasset market abuse has occurred, is occurring, or is likely to occur; and  
• it is necessary to disclose information to detect, prevent or disrupt the market abuse. 

The FCA intends to publish guidance and examples under CRYPTO 4.9 and will also set out rules under CRYPTO 4.9 on a safe harbour where certain conditions are met.   

The rules will be limited, and will not cover liability for data protection breaches, and only apply to the disclosure and receipt of information, not the subsequent use of such information.   

Firms must keep a record for five years of information that was shared or has not been shared following analysis. 

There are two proposed sourcebooks:  

• COREPRU: cross-sectoral rules for cryptoassets firms; and  
• CRYPTOPRU: sector-specific rules tailored to crypto-related activities.  

CP25/15 introduced the OFR, which is a minimum amount of capital that firms will need to calculate and maintain.   

CP25/42 sets out the rules for calculating the OFR, which will be the highest of either:  

1. Permanent Minimum Requirement (PMR);  
2. Fixed Overhead Requirement (FOR); and  
3. K-Factor Requirement (KFR).  

The PMR applies a fixed figure which is dependent on the regulated activities carried out by the firm. The PMR will range from:  

• £75,000 for dealing as agent or arranging deals in qualifying cryptoassets;  
• £150,000 for operating a CATP or qualifying cryptoasset staking; and  
• £750,000 for dealing as principal in qualifying cryptoassets.  

The KFRs are either activity based (which seek to address operational risk) or exposure based (which apply only to firms that take trading book positions, and typically cover market, credit and concentration risk).   

CP25/42 sets out a number of KFRs that are apply to specific cryptoasset activities.   

The FCA is consulting on the proposal to require firms to conduct a prudential risk assessment on an ongoing basis, similar to the ICARA requirements on investment firms.   

The proposals include requirements for: identifying and monitoring risks; risk mitigation; business model assessment, capital, and liquidity planning and stress testing; recovery actions; wind-down planning; assessing and monitoring the adequacy of own funds and liquid assets; determining the OFR; determining the liquid asset threshold requirement; and reviewing and documenting the overall risk assessment.