The DPF welcomes the opportunity to share our members’ views on and recommendations for the Discussion Paper, produced with advisory support from CMS Cameron McKenna Nabarro Olswang LLP. The DPF, an Innovate Finance programme since completing a merger in February 2025, is a member-led forum supporting the introduction of a well-designed digital Pound in both publicly and privately issued forms, and a diverse, effective and competitive ecosystem for new forms of digital money in the UK and globally. Our aim is to support the wider understanding of new forms of digital money, whether in the form of central bank digital currencies, stablecoins, tokenized deposits, or otherwise.
Given the nature of our forum, many of our members are not directly impacted by all of the proposals set out in the Discussion Paper. However, given the interconnectedness of the digital assets and payments ecosystem, we consider it important and appropriate to submit our views and recommendations where relevant.
We have therefore provided our response (the “DPF Response”) in the form of a number of general / thematic comments, in relation to the proposals and questions raised in the Discussion Paper. We note that our response focuses largely on the proposals for the admissions and disclosures (“A&D”) regime, given that these were considered most relevant to our members.
1) Principles and outcomes
We are generally in favour of the proposed strategic and regulation outcomes. However, we believe there is merit to incorporating the additional detail below – either directly into the existing outcomes, or as standalone points. We would encourage that these points are taken into account by the FCA and reflected in its final rules and guidance for implementation of the regime.
● In line with the UK government’s wider growth agenda, a recognition of the priority the regime places upon innovation, inclusiveness, and economic growth for and in the UK – as it relates to the entire UK digital assets ecosystem. Our view is that this domestic context is not sufficiently clear in the current outcomes. As discussed in section 3 below, we think it is critical for reasons of competition and cost that the regime is guided by a recognition that emerging technologies (and the companies and individuals producing them) must not be disproportionately stifled by regulation at the expense of efficient market development.
● As part of this, we would like to see an explicit commitment from the FCA that the regime and its rules are kept under active consideration and monitoring to the extent that any changes are required to reflect new types of financial products and services introduced.
● As the digital assets ecosystem is further embedded into existing financial markets, we also seek confirmation that a foundational principle of equal regulatory treatment and processing is in place to ensure that firms operating in and adjacent to cryptoasset markets are authorised and supervised in line with traditional finance firms in both timing and responsiveness.
● Finally, we would encourage a reconsideration of the definition of cryptoassets, supported by the development of a token classification system. The FCA’s proposals apply uniformly to an overly broad range of cryptoassets, excluding only security tokens. This approach does not sufficiently distinguish between different types of cryptoassets (e.g., fiat-referenced stablecoins, native cryptocurrencies, utility tokens, memecoins), all of which vary significantly in their design and function. A more nuanced approach overall to token classification would also bring the UK more in line with the approach under MiCA.
2) Key observations in relation to the proposals
We have a number of observations in relation to the overly burdensome nature of certain proposals under the proposed A&D regime. We have explained these below by reference to the key elements of the proposals, including reference to specific questions in the Discussion Paper. Where we have highlighted areas of observation, we have also sought to suggest helpful considerations for reforming the proposal.
Responsibility and liability for the admission document
Firstly, the FCA has proposed that responsibility for the production of admission documents under the A&D regime, and the associated liability, will lie with the person who initiates the application for admission to trading, including the Cryptoasset Trading Platform (“CATP”), where it initiates the application itself. We note that this is in contrast to the reformed prospectus regime, under which only issuers, and not offerors/exchanges, will be responsible for a prospectus. This may result in an increased burden on CATPs which, as we note above, may contribute to other unintended consequences.
We therefore recommend that the FCA adopt the proposed approach currently being considered for the new Public Offers and Admission to Trading regime (in CP24/12), namely to make issuers (rather than the exchanges, or ‘Public Offer Platforms’) responsible and liable for the preparation of admission documents. This is a more proportionate approach, particularly given the admission document will (presumably) always be required at the point of initial admission. We think that the CATP’s responsibility should be limited to the due diligence of the issuer and the public offer.
When the admission document should be required
The FCA has proposed that the admission document should always be required at the point of admission. The FCA acknowledges that where a cryptoasset is admitted to trading on more than one CATP, this may lead to variations in admission documents across CATPs for the same cryptoasset. As such, the FCA has suggested a possible requirement that the CATP dealing with any new admission must search the National Storage Mechanism to ensure that the information on the latest admission document is consistent with other documents previously lodged for the same cryptoasset. This would, however, impose additional costs on CATPs and risk perpetuating inaccuracies in existing admission documents.
As such, we consider that proposal would potentially create potential confusion for consumers in scenarios where such inaccuracies in admission documents are not identified. Additionally, this would place a further operational burden and disproportionate liability on CATPs, particularly smaller CATPs, to identify and amend individual admission documents, in addition to being responsible for the due diligence of the issuer and public offer.
While we would support the requirement of an admission document at the point of initial admission and at the point of further issuances, we think it may be disproportionate to require a subsequent new admission document to be produced at the point of further issuance. Instead, we think it would be more effective (and less burdensome) to permit the party responsible for this disclosure to rely on the previously submitted disclosure documents for the same cryptoasset, where they are able to sufficiently verify the information. Where necessary, they should be permitted to update and repurpose this prior disclosure to include relevant new information, rather than producing a new admission document, providing that the reasons for doing so are made clear within the new admission document. We note that this approach aligns with the existing exemptions set out in MiCA.
The disclosure requirements for the admission document
There are a number of aspects within the proposals for what should be contained in an admission document which we would like to address. Firstly, the FCA expects that there will be a statutory “necessary information test”, which would effectively set a minimum disclosure standard for all admission documents, where the document preparer could be held liable for consumer losses if they failed to provide necessary information about the cryptoasset. Additionally, the FCA has proposed to introduce a number of more detailed disclosures within the Handbook. This also includes certain rules in relation to disclosures concerning stablecoin issuers, which we address separately in the section below. We also note the proposal that CATPs would be responsible for setting and implementing their own more detailed disclosure requirements, in addition to those under the FCA’s proposed rules.
Firstly, we note that the introduction of an overarching necessary information test will be difficult to implement in practice, given its potentially very wide scope. We understand the intention is that this should focus on certain ‘core’ information, however criteria such as ‘risks of the cryptoassets’ may be hard to conclusively identify or define. Similarly, the proposed list of more detailed disclosures to form part of the FCA’s rules, as currently drafted (in 2.25 of the Discussion Paper), are too wide in scope to be interpreted consistently, without further clarity from the FCA. For example, the first proposed disclosure requirement in relation to the “nature and scope of governance mechanisms that may affect the cryptoasset” is unclear and open to interpretation. It is also unclear what the FCA’s threshold for enforcement would be in relation to these disclosure requirements – e.g., whether this would be based on accuracy, or consumer harm etc.
Overall, we think that these disclosure requirements as currently drafted are not proportionate for the intended purpose. We would be grateful for a clearer set of base level standards that specify the detail and type of information required for each disclosure requirement. In this respect, we would encourage the FCA to consider aligning its approach with the MiCA approach to disclosure, including the requirement to prepare a ‘white paper’ on admission to trading of qualifying cryptoassets. We think this would encourage cross-border market activity as well as alignment with other international standards. We would also support further FCA led industry engagement, including industry market research, to understand what disclosure requirements are appropriate and what information would be most helpful for consumers.
We would also suggest that any consideration of enforcement principles in this context should take into account the often unreliable nature of publicly available information on certain cryptoassets. Currently, there does not appear to be any consideration of the extent to which this unique aspect of the market for cryptoassets should be factored into the proposed disclosure requirements.
We recognise the FCA’s efforts to balance prescriptive rules with principles-based approaches, and so we agree that, in addition to the mandatory disclosures, CATPs should have the flexibility to determine any additional detail requirements for the contents of admission docs.
Disclosure requirements for stablecoin issuers
We also wish to highlight some observations in relation to the specific impact of these disclosure rules on stablecoin issuers, and how they relate to the forthcoming stablecoin regime. We understand that the FCA intends to avoid implementing duplicative disclosure requirements for stablecoin issuers, to ensure consistency with the A&D regime, however, as the FCA makes clear, the final approach will depend on its final rules for the stablecoin regime, which we understand will soon be the subject of a fresh consultation. To some extent, this effectively means that the full set of disclosure requirements for stablecoin issuers will not be clear until this further consultation is produced. However, the FCA has indicated the following specific disclosures for stablecoin issuers, in 2.25 of the Discussion Paper, which include:
“Information on factors such as the total number of tokens in circulation and the backing assets. For example, backing asset composition, value, safeguarding arrangements, the most recent independent audit, how 1:1 backing is maintained (that is, assets worth an equivalent amount backing the stablecoin) and the relationship with the issuer, stabilisation mechanisms (including risks that could affect price stability), and the redemption policy with a coinholder (such as fees, type of asset or currency that is returned, timescales for redemption)”.
As currently drafted, these considerations are too broad and require further guidance. For example, in relation to the specific disclosure of “safeguarding arrangements”, we would be grateful for further clarity on what precisely the FCA will expect disclosure of in this regard. We note the FCA’s comments in relation to this issue in its 2023 Discussion Paper on ‘Regulating cryptoassets Phase 1: Stablecoins’ (DP23/4). Specifically, in 5.38 of that paper, the FCA notes that cryptoasset custodians are “exploring the use of sub-custodians and other third parties, such as technology providers, to provide technology infrastructure, specialist expertise or storage facilities to safeguard clients’ cryptoassets. Such arrangements are likely to be subject to our proposals on operational resilience requirements”.
We understand that the FCA is concerned about the risk of using third parties in the safeguarding process, particularly where these third parties contribute to increased operational resilience and/or cyber risk. We note that the A&D Discussion Paper has also proposed, in its list of disclosures at 2.25, a specific requirement for disclosure in relation to “the operational and cyber resilience of the cryptoasset’s underlying technology and exposure to risks of hacks, vulnerabilities and disruptions”. We would therefore like to understand what the FCA will expect in terms of disclosure of operational and cyber resilience in relation to the use of sub-custodians and other third parties in the context of safeguarding arrangements. We note that the use of such third party providers of infrastructure or services to custodians is a common and necessary feature of many cryptoassets businesses and, as such, any overly onerous disclosure requirements that effectively restrict the use of such third parties could have the unintended consequence of limiting innovation and competition in the cryptoasset custody market.
Finally, the FCA notes, at 5.42 – 5.48 of DP23/4, that it is considering a range of other disclosure requirements by custodians for clients’ custody cryptoassets, including:
● Proof of Reserves (‘PoR’) – i.e., a cryptographically proved, independent audit process that cryptoasset custodians can use to verify that the amount of client cryptoassets held in custody corresponds precisely with the assets they are actually holding in reserve on behalf of those clients;
● Client assets audits – i.e., in line with the annual CASS audit requirement, for an independent external auditor to provide assurance in relation to the firm’s systems and controls for protecting client assets;
● Regulatory reporting – i.e., in line with the CASS requirement for monthly Client Money and Assets Return (‘CMAR’) reporting.
We understand that the FCA will also soon be publishing its consultation in relation to custody of cryptoassets, which will hopefully address these requirements. However, to the extent these activities will also form part of the disclosure requirements for the admission document under the A&D regime, we would be grateful for guidance on which specific elements will be required and the detail required etc.
Due diligence requirements
The FCA’s Discussion Paper outlines proposals requiring CATPs to conduct due diligence on both the issuer and the admission documents, in relation to a number of key issues, in order to make an informed assessment of the potential risk of detriment to consumers, and accordingly whether the cryptoasset should be admitted to trading. The due diligence needs to be sufficient to establish “a reasonable level of certainty” that the disclosures in an admission document are true and not misleading, and whether they meet the CATP’s specific requirements and the statutory necessary information test. It is also proposed that CATPs will be required to publish in admission documents a summary of the scope and key findings of the due diligence
As stated above, while we agree that CATPs should have responsibility for conducting the due diligence required on admissions to trading, we would like to make some observations regarding a number of aspects in these proposals. Firstly, the FCA recognises that it may not always be possible to verify the legitimacy of the offeror or the accuracy of disclosures, particularly where the offeror is a third-party that might be concealing or misrepresenting information provided to the CATP. While this will not be problematic for all cryptoassets, including for most stablecoins, the proposed standard requiring the CATP to establish a ‘reasonable level of certainty’ may be an overly burdensome standard to comply with in practice, particularly where there may be concerns with the issuer or individuals involved in the relevant project. Additionally, publishing these findings may give rise to other unintended consequences such as potential defamation claims against the CATPs where, for example, such concerns imply unlawful conduct.
We note that the FCA states in the Discussion Paper that where there is overlap between due diligence required under the A&D regime and due diligence under the Financial Promotions regime, in relation to specific offers, the CATP will not be required to duplicate due diligence. However, we consider that the recent implementation of the Financial Promotion regime to cryptoasset services only highlights the potential problems in applying similar due diligence standards. As the FCA has since reported on findings in relation to its implementation of its Financial Promotion rules for cryptoassets, examples of bad practice have included compliance with due diligence standards, including many firms being unable to show how information from the issuer or foundation behind the cryptoasset had been independently verified.
In addition to the FCA’s previous comments on disclosure requirements for stablecoin issuers, we note that the FCA has also referred to possible due diligence requirements for stablecoin issuers, particularly in relation to safeguarding arrangements. Specifically, at 5.39 of DP23/4, the FCA notes that it is considering requiring custodians that use sub-custodians and other third parties “to undertake adequate due diligence in the selection, appointment and periodic review of the third party”, and to “consider the expertise and market reputation of the third party”. In line with our response above, we think that any overly onerous due diligence requirements could effectively restrict the use of such third parties, which could have a negative impact on competition in the cryptoasset custody market.
Overall, we do not agree with the FCA’s proposed prescriptive approach requiring that specific information is reviewed as part of the due diligence. We think that a more appropriate solution would be a more risk-based and/or principle-based approach, especially where the FCA intends to allow CATPs flexibility in deciding its own disclosure requirements. We agree with the proposal to require the publication of a due diligence summary, but only where this focuses on the criteria and reasons underpinning the CATP’s decision to accept or reject the admission document. However, we do not agree with the requirement that the details of such review and analysis should be published by the CATP. We note that there is no such requirement to publish due diligence findings under MiCA.
Market abuse proposals
Finally, there is one aspect of the proposed cryptoasset market abuse regime which we would like to comment on, namely the availability of safe harbour provisions in relation to stablecoin issuers.
The FCA notes, at 3.52 of the Discussion Paper, that one example of a safe harbour that would be available to stablecoin issuers relates to backing asset shortfalls in regulated stablecoins, and delaying disclosure of this shortfall, but only where a disclosure would pose financial stability risks. The FCA notes that this proposal would mirror the rules under MAR on the delayed disclosure of inside information about liquidity issues at a credit or financial institution, where disclosure would pose financial stability risks.
The FCA refers to its previous Discussion Paper on stablecoins DP23/4, in which it detailed requirements on the backing assets of regulated stablecoins, given the risks and potential impacts that could emerge if backing assets fall short of expectations, which could affect confidence in the regulated stablecoin and cause a stablecoin ‘run’.
We agree that based on the proposed MAR-like definition for inside information, information on a regulated stablecoin backing asset shortfall could likely constitute inside information. As such, we also agree that, if the disclosure of such a shortfall in backing assets does pose financial stability risks, delayed disclosure should be justified as a safe harbour exception, in order to allow the issuer to find alternative ways to manage such shortfall to avoid a stablecoin run. However, we would like further guidance on what circumstances would qualify as posing “financial stability risks” in this context, and how this will relate to the FCA’s rules on backing asset requirements under its forthcoming stablecoin regime.
For example, we note that at 3.28 of DP23/4, the FCA outlined a possible proposal to ensure that the regulated stablecoin backing assets are sufficient, requiring stablecoin issuers to “‘top up’ any shortfall promptly and at most within 1 business day” and that firms will be expected to top up any identified shortfalls from its own liquid resources. Under such a proposal, would a failure to top up within the specified 1 business day constitute a financial stability risk that would qualify for the safe harbour exemption? We would be grateful for clarification in relation to this and any other circumstances that would be relevant.
3) Broader Risks and Unintended Consequences
Costs
The Discussion Paper highlights several direct costs associated with compliance with the proposed regime, including the incremental expenses arising from familiarisation with new rules, staff training, increased regulatory reporting requirements, as well as potential changes to business models. However, a number of additional indirect (and perhaps unintended) consequences in relation to costs require further consideration.
● For example, as a result of the issues raised in section 2 above, firms may need to hire additional staff, which could pose a significant financial burden on firms in the digital asset space, which are typically smaller and do not benefit from the same depth of personnel in traditional finance.
● Similarly, there are also associated expenses arising from enhanced security and resilience measures, alongside the technical costs of implementing systems capable of adhering to the new requirements. Consulting and outsourcing fees could further escalate costs, particularly for systems and controls necessary for appropriate oversight of any outsourcing arrangements, such as due diligence processes or the reporting and information sharing obligations under the proposed Market Abuse Regime for Cryptoassets. Additionally, given that intra-group outsourcing and service arrangements are prevalent in this industry, mandating significant staff presence in the UK could be inefficient and costly, especially when firms may have access to suitable resources in overseas group entities.
● For the smaller firms in the digital assets space, the convergence of these costs may be a material obstacle and therefore often prohibitive. Ultimately, this risks stifling the innovation and growth of the UK market.
Competition
If UK market participants perceive the proposed regime as “over-regulation” or as otherwise disproportionate in its impact on cryptoasset business (compared to traditional finance, and / or other jurisdictions), there is a risk that key parts of the cryptoasset ecosystem may relocate outside of the UK’s regulatory oversight – either overseas, or in the direction of decentralised exchange trading (which may be cheaper, with greater product availability, but with potentially larger risks for consumers). This may particularly be relevant for entities that would otherwise qualify as UK CATPs, given the proposed distribution of the regulatory burden (as discussed in section 2). This could inadvertently increase consumer harm within the UK and stifle the growth of the domestic cryptoasset industry, with a smaller pool of UK-authorised CATPs and a consolidation and reduction of asset listings due to the (already stringent) A&D requirements. Similarly, the general prohibition on public offers, together with the issues raised here, has the potential to seriously limit market liquidity and discourage the conditions necessary for a competitive and dynamic market.
Given that the demand for cryptoasset trading and products is already material, if the UK regulatory framework cannot accommodate demand, investors may be driven towards higher-risk venues that are perceived as sufficiently low-cost so as to negate the advantages of trading through a regulated platform, exacerbating the very issues the Discussion Paper seeks to address.
Once again, we welcome the opportunity to share our views in the DPF Response with the FCA and would be happy to engage directly with the FCA in relation to any of the issues raised, to the extent it would be helpful.
Kind regards,
Digital Pound Foundation, an Innovate Finance Programme
