Hogan Lovells UK cryptoasset regime roundtable key takeaways

With the Statutory Instrument (SI) now in its final form and laid before Parliament, the summit started with an overview of what this covers including: key concepts, definitions and what new regulated activities have been introduced for cryptoassets. Particular consideration was given to the territorial scope of the new regime, given its importance to our global clients and the impact of the removal of the overseas person exclusion; and to the definition of a qualifying stablecoin and how it differs from other asset types. Concern was also expressed about the FCA's ability to deal with the potentially significant volume of applications, even with the benefit of the saving provisions in the Statutory Instrument.

Below we set out a high-level summary of what was discussed.

Roundtable 1: Cryptoasset trading platforms and intermediaries

Cryptoasset trading platforms summary

Cryptoasset trading platforms (CATPs) are expected to operate through a UK legal entity when serving retail clients. Where the CATP is located in the UK, the entity that is operator of the CATP should be FCA authorised. Where the CATP is operated by an overseas entity, the FCA expects that entity to establish both: (i) an FCA authorised UK branch and (ii) a separate UK legal entity to operate alongside the branch. The ability of overseas platform operators to operate in the UK via a branch structure is intended to help preserve access by UK clients to global liquidity, rather than requiring the fragmentation of liquidity pools by mandating separate, UK‑based, trading venues. CATPs must apply fair, objective, and nondiscriminatory criteria for granting access to the platform, and trading must follow fully nondiscretionary execution rules similar to those used by multilateral trading facilities, with no carveouts for particular transaction types. While CATPs may carry out principal trading or intermediary functions within the same legal entity, they are required to maintain robust conflict‑of‑interest controls that ensure clear functional separation. They may also issue or admit their own cryptoassets to trading, provided appropriate conflict‑management arrangements are in place.

Key takeaways from the discussion:

• The branch and subsidiary model is one that was welcomed by participants. However, questions still remain in relation to the prudential requirements that the branch will be subject to, what level of substance will be required and how burdensome certain UK-specific operational requirements will be.
• Equivalence was also a topic of discussion. It was noted that, whilst this may take time and is not in the powers of the FCA, the FCA can ensure that substituted compliance is a possibility, potentially reducing the regulatory burdens on firms.
• It was noted that, given the FCA’s shift in position regarding principal dealing, the rules around non-discretionary trading are less of an issue than they would have been under the proposals in DP 25/1. Further guidance would be welcome, in order to iron out some of the more technical details.
• Participants broadly agreed with the FCA’s principles-based approach to defining settlement. It was, however, noted that whilst a more prescriptive and formulaic settlement approach may be suitable for retail payments, it should not be extended beyond there.

Cryptoasset intermediaries summary

Intermediaries involved in executing transactions in cryptoassets are required to meet best execution standards, meaning they must take all reasonable steps to secure optimal outcomes for clients, including checking prices against at least three reliable sources from UK qualifying execution venues. When serving retail or elective professional clients, they may only execute orders on UK‑qualifying cryptoasset venues, and they are prohibited from dealing in assets that are not, or will not be, admitted to trading on a UK‑authorised platform. Principal‑dealing intermediaries must also avoid relying predominantly on liquidity from non‑authorised affiliates. In addition, firms with annual revenues of £10 million or more must provide both pre‑ and post‑trade transparency to support market openness and informed participation.

Key takeaways from the discussion:

• Concerns remain with the requirements for UK venues to provide three reliable prices from UK CATPs. There is a broad concern that if intermediaries are unable to utilise global price discovery and determine their best execution obligations by reference only to UK prices, UK consumers will receive inferior prices than they would on the global markets – potentially leading to arbitrage opportunities. Another concern is the “cold start” issue – where intermediaries may be unable to find three quotes at the outset of the new regime.
• There are broad concerns that if UK CATPs are not listing many tokens, the requirement for retail orders to be executed only in respect of UK-admitted cryptoassets could be limiting and produce worse outcomes for clients.
• These concerns could lead to consumers moving into unregulated or offshore alternatives.
• It was discussed that a more proportionate model might place responsibility on intermediaries rather than restricting market access altogether.
• Participants also discussed the thresholds. It was noted that the £10m threshold seems arbitrary and there should be more nuance as to what is considered large or systemic.

Roundtable 2: Admissions & disclosures and market abuse regime for cryptoassets

Admissions & disclosures summary

Retail facing cryptoasset admissions and public offers are subject to a set of protections designed to safeguard individual investors. Platforms that permit retail participation must apply risk based, objective criteria when deciding whether to admit a cryptoasset to trading, supported by due diligence checks to identify potential harm. They are also required to produce and publish Qualifying Cryptoasset Disclosure Documents (QCDDs) and Supplementary Disclosure Documents (SDDs), with clear rules governing who is responsible for their accuracy and the extent of liability. Preparers benefit from limited liability for protected forward looking statements, helping balance disclosure with innovation. Investors gain additional protection through withdrawal rights, allowing them to retract their acceptance if new, material information emerges after the initial offer

Key takeaways from the discussion:

• It was noted that legislation already contains objective access criteria, and venues should retain flexibility to set their own standards. If the FCA imposes additional criteria, this could make venues overly conservative in what they admit to trading, which in turn may reduce asset availability and push consumers toward unregulated markets.
• The discussion highlighted that disclosure is intended to enable informed decision making; excessive pre listing diligence undermines that purpose.
• The point was raised that the first platform to prepare a QCDD bears disproportionate burden and risk, which may make firms reluctant to take the lead. It remains unclear whether a platform that prepares a QCDD must permit others to rely on it; without this, each venue may need to duplicate disclosures.
• In cases without an issuer, duplicative disclosure obligations could become significant and inefficient.
• Requirements in other jurisdictions were again raised, with participants highlighting the potential duplication with MiCA requirements. This could add further complexity and cost.
• A key theme in this part of the discussion was the risk of a restrictive regime leading to conservative listing of cryptoassets in the UK, which leads to less choice and competition for consumers.

Market Abuse Regime for Cryptoassets summary

The regulatory framework extends the existing market abuse regime to qualifying cryptoassets, bringing them within scope of familiar offences and conduct standards. Issuers, offerors, and trading platforms are made explicitly responsible for disclosing inside information in a timely and appropriate manner, with clearer rules on what counts as public information, what types of information relate to a cryptoasset issuer or platform, and in which circumstances disclosure may be legitimately delayed.

The regime also outlines categories of legitimate market practices that will not amount to market abuse. To support effective oversight, firms must meet strengthened governance expectations, including both on and off chain monitoring, maintaining insider lists, and sharing relevant information between platforms to help detect and prevent abusive behaviour.

Key takeaways from the discussion:

• In relation to market abuse, it was noted that concepts like inside information are especially challenging in decentralised environments. Identifying insiders is easier where a clear issuer exists, but far harder in issuer less or decentralised projects.
• Participants agreed that the FCA is taking a less central role in market abuse oversight than under UK MAR, with the FCA shifting responsibility onto CATPs. This could lead to UK CATPs having to take on a quasi regulatory role, despite lacking the tools or visibility to monitor off platform activity.
• For cross-platform information sharing, firms called for clearer guidance on what it is expected to share and how. The lack of clarity risks favouring large platforms that can absorb compliance burdens.
• It was agreed that industry led solutions, endorsed by regulators, may be the most workable path. However, it will be interesting to see how this develops in relation to international information sharing.
• The £10m revenue threshold for enhanced surveillance obligations provided to be contentious. Some participants argued that it is too high, leaving retail users exposed on smaller platforms, whilst others argued it is too low, imposing disproportionate burdens on smaller firms.
• Many of the rules resemble Consumer Duty principles, raising questions about whether crypto will be treated differently from other asset classes. It was noted that the FCA intends to consult separately on the application of the Consumer Duty to the new crypto regime.

Roundtable 3: Cryptoasset lending and borrowing

Lending and borrowing (L&B) activities will now fall squarely within the FCA's regulatory perimeter, meaning firms conducting them may need regulatory permissions to do so. The focus has shifted from debating whether these services should be regulated to defining how they will be overseen, with the FCA stepping back from earlier ideas such as banning retail participation or limiting services to qualifying stablecoins.

The proposed framework introduces stronger disclosure, consent, conduct, and governance standards, including requirements for retail lending to be overcollateralised and supported by negative balance protection. Firms must give retail clients clear and tailored risk disclosures before any arrangement begins, covering how assets are transferred and returned, clients' access to their cryptoassets, and any material risks. Retail clients must also give explicit, informed consent to key terms before their assets are used and may be required to top up collateral. Additional restrictions include prohibiting the use of proprietary tokens in L&B services and requiring firms to set appropriate loan‑to‑value ratios, margin‑call triggers, and liquidation thresholds for clients. While the FCA has moved away from proposals to apply elements of the Consumer Credit sourcebook (CONC) to crypto borrowing, it recognises that some L&B models may still fall within the existing consumer‑credit regime.

Key takeaways from the discussion:

• There was broad support for the FCA's shift toward allowing retail participation in lending and borrowing services. However, there is still uncertainty over whether retail clients must give express consent only once or each time collateral is topped up.
• Traditional finance analogies were made – for example, in respect of Lombard loans and CFDs, where lenders can demand more collateral, but it was noted that these comparisons are not perfect as crypto behaves differently due to its volatility and 24/7 markets.
• Examples were given of L&B structures where the use of a separate collateral wallet gives clients control over whether and when to add funds and limits ultimate exposures. However, it was noted that failure to maintain additional collateral in that wallet may still result in asset liquidation during volatile periods.
• There was uncertainty about when crypto‑backed loans may fall under the existing consumer credit regime. It was agreed that it is likely to depend on the structure of the products in question. For example, if the relevant product is structured as sale‑and‑repurchase, it may fall outside consumer‑credit rules, but if structured as borrowing fiat against crypto collateral, it may be treated as consumer lending with exposure beyond the collateral.
• Greater clarity in this area will be important as uncertainty could lead to similar products being regulated in different ways, with very different outcomes and recourse for those involved.

Roundtable 4: Staking and DeFi

Staking summary

Retail staking services will be governed by a set of targeted requirements aimed at strengthening consumer protection and operational discipline. Retail clients must provide explicit consent to the key terms of the service each time a staking arrangement begins, ensuring they actively acknowledge how their assets will be used. Staking firms will also fall under operational resilience rules, requiring them to identify important business services and set appropriate impact tolerances to guard against disruptions. The earlier proposal that firms should compensate retail clients for losses arising from preventable operational or technological failures has been dropped, signalling a shift in how responsibility is allocated. Firms will, however, face new obligations to maintain detailed records of staking activities, supporting oversight, auditability and regulatory supervision.

Key takeaways from the discussion:

• It was agreed that the FCA has improved on its earlier proposals and has focused more on applying horizontal rules in a proportionate manner to staking services. Operational resilience and disclosures are key priorities for the FCA and participants agreed with this.
• The previous requirement for firms to compensate retail clients for preventable operational or technological failures has been removed, reducing potential liability exposure. Greater emphasis is now placed on clear, upfront disclosures, particularly around how client assets are held and safeguarded, signalling a shift toward transparency rather than strict liability.

DeFi summary

The regulatory framework will also extend to decentralised finance where a DeFi arrangement has an identifiable controlling entity – which means that the same rules applying to other regulated cryptoasset activities would apply in those circumstances. The FCA plans to consult further on how different levels of decentralisation and control should be assessed, particularly in situations where a DeFi protocol or service still has a party that can be considered responsible for key functions or decision making.

Key takeaways from the discussion:

• The FCA’s consultation papers contain only minimal material on DeFi, despite its growing relevance.
• Participants noted that whilst DeFi is seen as something that is not a pressing matter, over regulating centralised finance (CeFi) risks pushing users toward DeFi and unregulated platforms. This raised the question as to whether a more sustainable approach may be to start with a moderate CeFi framework and build it up gradually. If the UK leaves a regulatory vacuum, unregulated DeFi protocols could fill the gap.
• Industry participants argue that if DeFi is permitted, some form of monitoring is essential; doing nothing is not viable. Firms noted that the technology exists to track flows into risky protocols, but queried whether there was sufficient regulatory to pursue that. Participants felt that there is a need for regulators to have more digital tools, such as regulatory nodes, and that there is a case for embedded supervision.

Authored by Michael Thomas, Dominic Hill, Lavan Thasarathakumar, and Charlie Middleton.