Published concurrently with Consultation Paper 25/14 (CP 25/14) on the proposals for stablecoin issuance and cryptoasset custody in the UK, Consultation Paper 25/15 (CP 25/15) sets out the UK Financial Conduct Authority’s (FCA’s) proposed prudential regime for cryptoasset firms.
In this update, we provide an overview of the proposed prudential rules and guidance for firms with permission to carry out the activities of “issuing qualifying stablecoins” or “safeguarding qualifying cryptoassets” (CRYPTOPRU Firms).
The deadline for feedback for both CP 25/14 and CP 25/15 is 31 July 2025, and the FCA intends to publish final rules in 2026.
Integrated Prudential Approach
The FCA has modelled the proposed regime for cryptoasset firms on the current prudential requirements that apply to UK investment firms, despite criticism at the discussion-paper stage that this may be disproportionately onerous given stablecoin risk profiles. Respondents to the discussion paper suggested that the prudential model for e-money issuers would be a better basis for the regime.
The proposed new regime will be structured as two separate sourcebooks that will both apply to cryptoasset firms: (i) COREPRU and (ii) CRYPTOPRU. The introduction of this structure marks the start of the FCA’s remodelling of its approach to prudential regulation, with the ultimate intention that the rules in COREPRU will apply to all FCA-solo regulated firms, supplemented by specific sourcebooks for each type of firm (i.e., CRYPTOPRU for cryptoasset firms).
Overview of Proposals
CP 25/15 sets out proposals relating to the requirements for own funds, liquid assets and management of concentration risks. Cryptoasset firms will also be subject to the overall financial adequacy rule (OFAR), which requires that a firm, at all times, maintains financial resources adequate in both amount and quality for the business it undertakes. This supplements the overarching requirements on threshold conditions and principles of business.
CP 25/15 does not cover all aspects of the prudential regime. A separate consultation is planned on the remaining requirements — including cryptoasset firm group requirements, internal capital adequacy and risk assessment (ICARA) and public disclosure of prudential information.
The prudential requirements for qualifying stablecoin issuers will apply in addition to the backing asset requirements set out in CP 25/14.
Own Funds Requirements
The FCA proposes a minimum own-funds requirement (OFR) for CRYPTOPRU Firms that will require them to hold as own funds the higher of:
- permanent minimum requirement (PMR);
- fixed overhead requirement (FOR); or
- K-factor requirement.
| Permanent Minimum Requirement | Fixed Overhead Requirement | K-Factor Requirement | |
|---|---|---|---|
| Qualifying stablecoin issuers | £350,000 | 25% of a CRYPTOPRU Firm’s “relevant expenditure” in the previous year | 2% of the firm’s average qualifying stablecoin in issuance |
| 0.04% of the firm’s qualifying cryptoassets safeguarded | |||
| Cryptoasset custodians | £150,000 |
Permanent Minimum Requirement
As anticipated following the proposals in Discussion Paper 23/4 (DP 23/4), a CRYPTOPRU Firm will be expected to always operate with a minimum level of own funds based on the cryptoasset services and activities it has permission to undertake; this is its PMR. For issuers of qualifying stablecoins, the FCA proposes a PMR of £350,000, which broadly aligns with the equivalent requirements for e-money firms. For cryptoasset custodians, the PMR is set at £150,000. The higher PMR would apply where a firm undertakes a combination of regulated cryptoasset activities.
Fixed Overhead Requirement
Similarly, as proposed in DP 23/4, CRYPTOPRU Firms will be required to meet a fixed overhead requirement on an ongoing basis, representing the minimum amount of capital that a CRYPTOPRU Firm would need to absorb losses if it winds down or exits the market.
The FOR will be calculated as equal to a quarter of a CRYPTOPRU Firm’s relevant expenditure in the previous year, based on its most recent audited annual financial statements (the use of unaudited financial statements would only be permitted in the period until audited financial statements are available).Where a CRYPTOPRU Firm has been in business for less than a year, its FOR will be calculated based on the relevant expenditure in its financial projections (and as provided to the FCA as part of its licensing application).
Relevant expenditure is calculated as total expenditure (before profit distribution) minus fully discretionary expenses that have not already been treated as a distribution of profits (such as staff bonuses, employee/director profit sharing, shared commission and fees, nonrecurring expenses from non-ordinary activities and taxes due in relation to annual profits).
K-Factor Requirement
The third component of a CRYPTOPRU Firm’s own-funds requirements is the variable activity-based requirement. As will be familiar to MIFIDPRU investment firms, the “K-factor” requirement (KFR) helps address the potential for harm arising from a firm’s ongoing operations.
Not all K-factor capital requirements will be relevant to all CRYPTOPRU Firms — which ones will apply will depend on the activities the firm undertakes. Where a firm conducts multiple regulated cryptoasset activities, the overall K-factor will be the sum total of the K-factors for each relevant cryptoasset activity. Specifically, as shown in the table above:
- The K-Factor for Qualifying Stablecoin in Issuance equals 2% of the firm’s average qualifying stablecoin in issuance (separate and in addition to the backing asset requirement).
- The K-Factor for Qualifying Cryptoassets Safeguarded equals 0.04% of the firm’s qualifying cryptoassets safeguarded (including where these are held by third parties or where the firm itself has been appointed as a third party to safeguard cryptoassets).
CRYPTOPRU Firms That Are Also MIFIDPRU Firms
Where a firm is subject to both CRYPTOPRU and MIFIDPRU obligations, the own-funds requirements will apply as follows:
- The PMR will be the highest applicable PMR.
- The FOR will be the same as it is calculated based on the firm’s total expenditure.
- The KFR will be the sum total of all relevant K-factor requirements applicable under both CRYPTOPRU and MIFIDPRU regimes.
Own Funds
Definition and Composition of Capital
The FCA has proposed that the types and treatment of own funds will be the same as those for MIFIDPRU investment firms, comprised of the following three classes of capital:
- Common Equity Tier 1 (or CET1) capital;
- Additional Tier 1 (or AT1) capital; and
- Tier 2 (or T2) capital.
The items that need to be deducted from the different tiers of funds is also based on the deductions for MIFIDPRU investment firms and will ultimately apply to all COREPRU firms, including CRYPTOPRU Firms. However, CP 25/15 further proposes that a CRYPTOPRU Firm must deduct cryptoassets it holds that it has issued itself, or cryptoassets issued by a connected party (excluding fully backed qualifying stablecoins); the deduction will also apply to any holding of a cryptoasset if the firm or a connected party controls the supply of the cryptoasset.
All COREPRU firms (including CRYPTOPRU Firms) will be expected to hold (at a minimum) own funds to meet their own-funds requirement (as discussed below) 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.
All COREPRU firms will need prior permission from the FCA to issue capital instruments as CET1 capital. If a firm already has permission to issue instruments as CET1 capital, the firm will not need to obtain permission to subsequently issue the same form of instruments, provided that the provisions of the new instruments are substantially the same. Firms must provide sufficient notice of the subsequent issuance.
Liquid Assets Requirement
Basic Liquid Assets Requirement
All COREPRU firms will be required to maintain a “basic liquid assets requirement” (BLAR) equal to the sum of:
- one third of the amount of a firm’s FOR (as discussed above); and
- 1.6% of the total amount of any guarantees provided to clients.
COREPRU firms can use any combination of the following core liquid assets to meet the BLAR (excluding any asset that belongs to a client or is subject to an encumbrance or other restriction):
- coins and banknotes;
- short-term deposits at a UK bank;
- assets representing claims on or guaranteed by the UK government or the Bank of England (for example UK gilts and Treasury bonds); and
- units or shares in a short-term regulated money market fund, or in a comparable third country fund.
The FCA is proposing that, generally, core liquid assets must be denominated in pound sterling. However, where COREPRU firms incur expenditure in other currencies, CP 25/15 proposes to allow the use of comparable core liquid assets denominated in a matching foreign currency (up to the proportion of the expense incurred in that currency) to meet the BLAR.
Issuer Liquid Asset Requirement
As discussed in our separate update outlining CP25/14, under the proposed rules in that consultation, qualifying stablecoin issuers must maintain a backing asset pool equivalent to the value of all their minted qualifying stablecoin. Qualifying stablecoin issuers will also have an additional obligation separate to the backing asset pool requirement and the BLAR: the “issuer liquid asset requirement” (ILAR). The ILAR requires qualifying stablecoin issuers to calculate the level of on-demand cash deposits they need to hold to account for price volatility in the backing asset pool so that if there is a shortfall, firms will then be able to promptly top up the backing assets pool to the 1:1 ratio by the end of the following business day. Only deposits that are immediately available without restrictions would be appropriate to meet this requirement.
The ILAR will be calculated by the issuer categorising each asset in the backing asset pool as one of the following types of assets:
- Level 1, which are government debt instruments issued by Canada, France, Germany, the Netherlands, the UK or the United States;
- Level 2, which are government debt instruments issued by Australia, Austria, Belgium, Denmark, Finland, Ireland, Italy, Japan, Luxembourg, New Zealand, Norway, Portugal, Spain, Sweden or Switzerland; or
- Level 3, which are government debt instruments issued by a member of the Organisation for Economic Co-operation and Development that is not a Level 1 or 2 country.
Once assets are categorised, the issuer must determine the charge for each asset (as set out in the draft rules), multiply the notional value of each asset by the charge and then add these amounts to calculate the total ILAR.
Where an issuer has multiple qualifying stablecoin issuances, the ILAR would need to be calculated for each individual issuance and held cumulatively. The on-demand cash deposits that contribute to an issuer’s ILAR must be denominated in the same currency as the reference currency for each qualifying stablecoin.
Concentration Risk
A CRYPTOPRU Firm will be under a general obligation to monitor exposures from all relevant sources to ensure it is not overly exposed to one or more counterparties/assets, including assets, off-balance sheet items, the location of client money and custody assets, the location of the firm’s own cash deposits, the sources of earnings and, when a CRYPTOPRU Firm is issuing qualifying stablecoin, the backing assets pool.
Firms will be expected to have sound administrative and accounting procedures supported by robust internal controls to identify, monitor and control concentration risks.
The FCA Approach Compared to MiCA
By treating qualifying stablecoin issuers similarly to e-money issuers in some instances, the FCA is partially following the direction the EU has taken for stablecoins that qualify as e-money tokens (EMT), i.e., tokens that reference only one official currency.
The Markets in Crypto-Assets (MiCA) Regulation not only applies the prudential model for e-money issuers to EMT issuers, but requires the issuers of EMTs to be regulated as e-money institutions (or credit institutions). As such, EMT issuers, for example, must have own funds in the amount of at least 2% of the average amount of EMTs in circulation, thereby requiring these issuers to maintain similar own funds as proposed for CRYPTOPRU Firms. The FCA is also proposing comparable liquid asset requirements to the ones applicable to issuers of EMT in the EU.
Conclusion and Future Developments
The FCA has shown limited movement from the proposals in its earlier discussion paper and continues to be concerned about the risks of cryptoasset activity. In this landscape, stakeholders are unlikely to be surprised that the proposed capital requirements are anticipated to result in higher capital requirements for CRYPTOPRU Firms than equivalent non-crypto firms.
As set out in the FCA Crypto Roadmap, the FCA expects to publish the second consultation on the outstanding elements of the prudential sourcebook (including details of the ICARA proposals) in Q4 2025 or Q1 2026, which will allow for a full assessment of the impact of the regime.
We will continue to consider the draft rules alongside the other detailed proposals set out in both consultation papers, and provide updates as the regime develops.
This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.