UK’s FCA Proposes Stricter Crypto Custody Rules to Protect Client Assets

The UK Financial Conduct Authority (FCA) has unveiled stringent new proposals in consultation paper CP25/14, targeting cryptocurrency custody providers operating in or serving the UK market. The regulations mandate trust structures, asset segregation, capital reserves, and daily reconciliations—marking the first major attempt to bridge the gap between traditional financial safeguards and cryptoasset protection.

Unlike bank deposits covered by the Financial Services Compensation Scheme (FSCS), crypto assets currently have no statutory protection under UK law. The FCA’s framework stops short of creating an equivalent insurance scheme but imposes rigorous operational standards. Firms must now hold client crypto in legally recognized trusts, maintain separation from corporate assets, and demonstrate financial resilience through capital buffers.

The MOVE could reshape the competitive landscape for custody services, where UK-based firms have historically played a minor global role. While the rules focus on stablecoin issuers and custodians rather than specific tokens, their implementation may accelerate institutional adoption by addressing longstanding security concerns.