CP25/14: Regulating Stablecoins

On 28 May 2025, the UK's Financial Conduct Authority (FCA) published a Consultation Paper (CP25/14), seeking feedback on proposed rules and guidance for the issuance of qualifying stablecoins and the safeguarding of qualifying cryptoassets. This consultation is part of a broader initiative to establish a regulatory framework for cryptoassets in the UK, and is published as envisaged at the time set out in the FCA's roadmap for cryptoassets. It follows HM Treasury's  publication of a Draft SI and Policy Note setting out proposals for a new regulatory regime for cryptoassets, as well as the FCA's Discussion Paper (DP25/1) on Regulating Cryptoasset Activities, a summary of which can be found here.  

This article looks at the proposed rules relating to stablecoins found in CP25/14. We look at the rules for the safeguarding of cryptoassets in a separate article, found here.

On the same day, the FCA also published a consultation paper on proposed prudential requirements for cryptoasset firms (CP25/15). Our summary of that consultation paper can be found here.  

Background

The FCA begins CP25/14 reiterating its position that the majority of cryptoassets remain high risk, speculative investments. Consumers should be prepared to lose all their money if they buy them. However, it acknowledges that stablecoins are different: they are designed to be stable, money-like instruments and qualifying stablecoins have certain features and use cases that require protections in relation to stability.

There are a number of key requirements consulted on in CP25/14 that the FCA intends would help maintain that stability and ensure that customers are protected. A key focus of the FCA is to reduce potential harms that could be caused to consumers using stablecoins. The main aspects that it considers are related to the redemption of stablecoins, and the backing assets used to maintain the stable value.

1. Interaction with Payments and E-Money

As set out in the Draft SI, the Treasury has decided to distinguish qualifying stablecoins  from e-money. This means that firms issuing both e-money and qualifying stablecoins would need permission for both activities.

There has been a lot of discussion regarding innovation in payments, with the FCA, Bank of England and HMT publishing a cross-authority roadmap in 2023, the Bank of England also publishing a Discussion Paper on the regulatory regime for systemic payment systems using stablecoins and related service providers, and HMT recently publishing its National Payments Vision.

The position the Bank set out remains the case, so issuers of systemic stablecoins used for payments as recognised by HMT will be brought in scope of the Bank of England's regime and subject to its requirements. This will occur alongside those requirements imposed by the FCA on firms carrying out activities set out in the amended Regulated Activities Order, meaning that such providers will be dual regulated by the Bank and the FCA.

The FCA has made clear in this CP that as use cases for qualifying stablecoins are developed the Treasury may bring retail payments made with qualifying stablecoins within the FCA perimeter.

2. Multi-currency Stablecoins

"Qualifying stablecoin" can, under the proposed definition include stablecoins that are referenced to more than one fiat currency. The FCA posits that this could include the issuing of stablecoins referenced to a pair of fiat currencies, or a 'basket' of several currencies. The FCA asks respondents to identify any other structures. Multi-currency stable coin hasn't really been seen in the wild, at least not since the failed Facebook backed-Libra, so it's not clear how much interest there will be in such a type of stablecoin.       

3. Backing Assets

The FCA proposes that issuers must hold backing assets in amounts equivalent to the value of the stablecoins that have been minted. Minting here means the point where a stablecoin first exists as an identifiable asset on the blockchain in a transferrable form - which is not necessarily the same point at which it is issued to a customer. This doesn't apply to stablecoins which have been redeemed. On redemption, issuers must count these stablecoins as part of the stablecoin pool which must be backed within 24 hours, or take them permanently out of circulation.

Composition: The backing asset pool must be composed of assets that are low risk, secure and sufficiently liquid. The assets must facilitate smooth and timely redemption and be able to accommodate asset liquidations with minimal price impact. The proposed default position is that issuers will only be able to hold 'core backing assets', comprised of short-term deposits and short-term government debt instruments. The objective is that holders can redeem stablecoins within a

On-demand Deposit Requirement: Firms will need to hold a minimum proportion of 5% of on-demand bank deposits - the on-demand deposit requirement (ODDR). 

Using a wider range of backing assets: Firms may be able to use an expanded range of backing assets, if they have notified the FCA of their intention to do so and demonstrated that they have the skills and competence to manage such an expanded backing asset pool. The expanded range includes:

• longer term government debt instruments that mature in over one year

• units in a Public Debt CNAV Money Market Fund (PDCNAV MMF)

• assets, rights or money held as a counterparty to a repurchase agreements or a reverse repurchase agreements (subject to certain conditions)

These issuers will have to comply with the backing assets compositions ratio (BACR). The idea is that y adhering to the ratio, which is calibrated referencing relevant redemption data, the issuer will be able to maintain the 1:1 peg and meet forthcoming redemption requests.

Interest: The FCA's position from DP23/4 remains unchanged, maintaining that issuers can retain but not pass down interest from the backing asset pool directly or indirectly to consumers.

4. Safeguarding

Segregation and the statutory trust: The key proposal  from the FCA is that stablecoin issuers must hold backing assets in a statutory trust for the benefit of qualifying stablecoin holders. Where an issuer has more than one stablecoin product, the backing assets must be held separately and in different trusts.

All stablecoins to be fully backed: The FCA acknowledge that minting stablecoins prior to public issue can provide operational efficiencies. However, it sees a risk of unbacked stablecoins being released into the cryptoasset ecosystem, with the number issued exceeding the value of the backing assets. As such, it proposes that that all minted stablecoins must be fully backed, including those held by the issuer for their own benefit. Issuers will have 24 hours to re-back or burn redeemed stablecoins.

Unconnected Third Party Safeguarding: The FCA proposes that issuers must appoint third parties which are unconnected to them (or any of the issuer's group) to safeguard backing assets in order to limit intra-group contagion risk. However, it will be possible to appoint a number of third parties to this role. These third parties will be appointed in line with existing CASS requirements.

Record Keeping and Reconciliations: The FCA is firm in its belief that accurate books and records are essential to make sure an issuer is holding the correct amount of backing assets. It considers the benefits of daily reconciliations to outweigh any concerns raised in responses to previous discussion papers.

CASS oversight officer, client assets audit and reporting: The FCA proposes to require issuers to appoint a CASS oversight officer, and will further consult on rules relating to client assets audit in the upcoming conduct of business and firm standards consultation paper. Reporting will be consulted on in the upcoming trading platforms, intermediation, lending and staking consultation paper. 

5. Redemption

The proposal from the FCA is to require issuers to provide holders with the right to redeem for all stablecoin holders:

• at par value;

• regardless of whether the holder is a retail or non-retail client;

• whether or not the holder is based in the UK;

• in return for money, rather than other assets; and

• at the latest by the end of the business day following receipt of a valid request.

A "valid" request is one that comes from the holder as principal, or an agent of the holder, in line with any terms and conditions set out and providing that the issuer has all required information to meet any AML or financial crime obligations. The obligation may be disapplied in certain circumstances, including where the redemption would breach a legal requirement or court order, and where the redemption is requested in a currency other than the reference currency of the stablecoin, if the currency exchange required would take longer than executing a redemption in the reference currency.

6. Use of Third Parties

Issuers will be permitted to use third parties to carry out elements of their activities, however, where such third parties sell stablecoins on behalf of an issuer, the FCA proposes that the issuer receives any incoming funds directly into an account in its own name.

Where issuers use third parties for redemption, as is common practice for stablecoin issuers, the issuer would remain responsible for compliance with all redemption requirements, and any decision to suspend redemption should be reserved to the issuer.

7. Disclosure Requirements

Following on from DP24/4 on Admissions & Disclosures, the FCA maintains the position that customers must have suitable information to be able to make informed decisions. It is proposing to give issuers some choice around how to present the information that they must publish, suggesting infographics, illustrations or frequently asked questions (FAQs). However, it is clear that the issuers must publish information on backing assets, redemption policies, and the third parties that are acting on their behalf

Some information will need to be updated whenever it becomes inaccurate, including:

• the description of the technology used for the qualifying stablecoin;

• the potential fees and steps for processing a redemption request;

• the names of any third parties who have arrangements with the issuer to carry on part of the issuing activity; and

• the names of any firms who provide the issuer with a backing funds account or backing asset account. ;

Other information will need to be updated at least once every three months, including:

• the value and percentage breakdown of the assets comprising the backing asset pool.

• the total number of stablecoins that have been minted and issued.

• a statement that confirms that the issuer is meeting the requirement for the stablecoin pool to be backed 1:1 by assets in the backing asset pool.

Further, issuers will be required to publish:

• an explanation of any redemption fees, including how they are calculated; and

• the process for redemption, including the payment methods the issuer will make available for redemption.