What the FCA Discussion Paper Really Means for Crypto Businesses Worldwide
In May 2025, the UK Financial Conduct Authority released one of the most consequential crypto policy documents seen to date: Discussion Paper DP25/1 – Regulating Cryptoasset Activities .This is not just another regulatory consultation. It is a blueprint.
For the first time, a major global financial centre has laid out, in granular detail, how it intends to regulate crypto trading platforms, intermediaries, lending, staking, credit usage, and decentralised finance under a unified framework. The implications go far beyond the UK.
For Virtual Asset Service Providers, Web3 founders, investors, and institutions operating globally, including in hubs such as Dubai, the EU, Singapore, and beyond, this paper offers a clear signal of where crypto regulation is heading next.
At CRYPTOVERSE Legal, we see this Discussion Paper as a strategic inflection point. Below, we break down what the FCA is proposing, why it matters, and how crypto businesses should interpret this shift in the global regulatory landscape.
Why This Discussion Paper Matters
The FCA begins with a candid admission: crypto is no longer niche. According to data cited in the paper, around 12 percent of UK adults now own cryptoassets, representing roughly 7 million people . When markets reach this level of retail penetration, regulators cannot treat them as experimental. Importantly, the FCA does not frame crypto as a threat to be eliminated. Instead, it frames crypto as financial activity that requires structure.
The stated objectives of the proposed regime are revealing:
- Consumer protection
- Market integrity
- Effective competition
- International competitiveness and growth
- Long-term sustainability
These objectives closely mirror those adopted by regulators in other major jurisdictions, including the EU under MiCA and Dubai under VARA. The UK is not trying to reinvent the wheel. It is aligning crypto with the regulatory logic already applied to traditional financial markets.
From AML-Only Oversight to Full Market Regulation
Historically, the FCA’s remit over crypto was narrow. It largely focused on:
- AML and CTF obligations
- Financial promotions
- Consumer protection laws
Everything else remained unregulated.
The Discussion Paper marks a decisive shift. Following the UK Treasury’s draft amendments to the Regulated Activities Order, the FCA intends to regulate the following crypto activities:
- Operating cryptoasset trading platforms
- Cryptoasset intermediation
- Cryptoasset lending and borrowing
- Staking
- Certain decentralised finance activities
This mirrors a broader global trend. Regulators are moving away from piecemeal oversight and toward activity-based regulation. If it looks like a financial service and creates financial risk, it will be regulated as such.
Crypto Trading Platforms: The Cornerstone of the Framework
Cryptoasset Trading Platforms, referred to as CATPs, sit at the centre of the FCA’s proposals. The FCA identifies trading platforms as the single most important source of potential systemic and consumer harm. These platforms concentrate liquidity, control market access, influence price discovery, and often combine multiple roles such as trading, custody, issuance, and settlement.
Key themes in the FCA’s approach include:
a. UK Authorisation and Location Policy
Any platform serving UK retail clients will generally need to be authorised in the UK . Offshore incorporation alone will not be sufficient. This reflects a clear regulatory philosophy: jurisdiction follows the user, not the entity.
b. Overseas Platforms and Branch Models
The FCA recognises the importance of global liquidity. It therefore proposes a branch and subsidiary model that allows overseas exchanges to serve UK users while maintaining a meaningful UK presence. However, for retail access, a UK legal entity or equivalent supervisory foothold is considered essential.
This approach closely resembles regulatory models adopted in Dubai and the EU, where foreign VASPs must establish local regulated entities to access retail markets.
c. Neutral Market Infrastructure
Perhaps the most striking position is the FCA’s insistence that trading platforms should operate non-discretionary trading systems. In simple terms, platforms should follow predetermined rules and treat all orders equally. Discretionary matching, selective execution, or preferential treatment is viewed as a source of unacceptable risk.
The FCA also expresses strong concern about platforms trading against their own users or issuing tokens they have a financial interest in. These practices are seen as creating unmanageable conflicts of interest. The message is clear: crypto exchanges must behave like markets, not counterparties.
Transparency and Market Integrity
The FCA is blunt about the current state of crypto market data. It describes crypto markets as fragmented, opaque, and inconsistent, with unreliable pricing information and limited visibility into execution outcomes.
To address this, the FCA proposes:
- Pre-trade transparency through access to order book data
- Post-trade transparency through publication of executed trade information
- Robust record-keeping obligations
While acknowledging the risk that excessive transparency could harm liquidity, the FCA’s direction of travel is unmistakable. Crypto markets are being pushed toward the same transparency standards expected in traditional financial markets.
Crypto Intermediaries and Execution Quality
Beyond exchanges, the Discussion Paper devotes significant attention to crypto intermediaries such as brokers, agents, and arrangers. The FCA highlights several risks:
- Consumers being unable to distinguish between platforms and brokers
- Higher costs hidden behind user-friendly interfaces
- Conflicts arising where firms execute client orders while trading for their own account
Best Execution Comes to Crypto
One of the most consequential proposals is the application of best execution principles to crypto intermediaries. Firms executing client orders would be expected to take reasonable steps to achieve the best possible outcome, taking into account price, fees, speed, and likelihood of execution .
For retail clients, the FCA emphasises total consideration, meaning all costs associated with a trade, not just headline prices. This aligns crypto markets with long-standing conduct standards in traditional finance and significantly raises the bar for compliance.
Payment for Order Flow
The FCA also signals its intention to prohibit payment for order flow in crypto markets, citing conflicts of interest and potential consumer harm. This mirrors regulatory positions taken in other jurisdictions and underscores the FCA’s commitment to market fairness.
Lending, Borrowing, and the Shadow of 2022
Crypto lending and borrowing receive some of the strongest language in the Discussion Paper. The FCA explicitly states that, in their current form, these products are not suitable for retail consumers. The rationale is grounded in recent history:
- Consumers transfer ownership of assets and become unsecured creditors
- Firms reinvest or on-lend assets, creating liquidity mismatches
- Market downturns rapidly expose structural weaknesses
The FCA references major platform collapses during the 2022 crypto market downturn as evidence of systemic risk.
Potential Pathways for Reform
Rather than imposing an outright ban, the FCA explores whether retail access could ever be justified if risks are substantially mitigated. Proposed safeguards include:
- Creditworthiness assessments
- Explicit consent acknowledging ownership transfer
- Limits on automatic collateral top-ups
- Enhanced disclosures and appropriateness testing
Notably, the FCA considers whether restricting certain models to qualifying stablecoins could reduce volatility and risk. This is a pragmatic approach. It recognises innovation while refusing to ignore hard lessons from past failures.
Staking: From Passive Yield to Regulated Activity
Staking is often marketed as low-risk yield generation. The FCA disagrees. The Discussion Paper identifies multiple risks associated with staking:
- Slashing penalties
- Validator and third-party failures
- Lock-up and liquidity risks
- Poor segregation and record-keeping
To address these risks, the FCA proposes a robust regulatory framework, including:
- Mandatory key features documents
- Explicit consumer consent before staking
- Segregation of staked assets
- Regular reconciliations and accurate records
Crucially, the FCA suggests that where retail losses arise from preventable operational or technological failures, firms should absorb those losses. This represents a significant shift toward accountability and mirrors safeguarding expectations seen in jurisdictions like the UAE under VARA.
DeFi and the Myth of Regulatory Immunity
The FCA addresses decentralised finance with a nuanced but firm approach. It acknowledges that truly decentralised systems with no controlling person may fall outside regulation. However, it also states plainly that most DeFi services today are not fully decentralised. Where there is identifiable control, governance, or influence over operations, regulation applies. The FCA adopts a simple test: same risk, same regulatory outcome.
If a DeFi protocol performs the same economic function as a centralised service, it should meet equivalent regulatory standards. This approach seeks to prevent regulatory arbitrage while still allowing innovation to develop responsibly.
Credit Use and Consumer Behaviour
Another notable proposal concerns the use of credit to purchase cryptoassets. The FCA highlights data showing a growing number of consumers using credit cards and credit facilities to buy crypto. Given crypto’s volatility, the FCA is concerned about unsustainable debt and financial distress. It therefore explores whether firms should be restricted from accepting credit for crypto purchases, with possible exemptions for qualifying stablecoins .
This reflects a broader shift toward behavioural regulation, focusing not just on products but on how consumers interact with them.
A Global Signal, Not a Local One
Perhaps the most important takeaway from the Discussion Paper is its international dimension. The FCA repeatedly references its alignment with IOSCO, the Financial Stability Board, and FATF. The UK is positioning itself as a rule-maker, not a rule-taker, in global crypto regulation.
For crypto businesses operating internationally, this matters. Regulatory frameworks are converging. What is being proposed in the UK closely resembles developments under MiCA in the EU and VARA in Dubai. The era of regulatory arbitrage is closing.
What This Means for Crypto Businesses
For VASPs, Web3 founders, and institutions, the message is clear:
- Opaque business models will not survive
- Conflicts of interest must be managed, not hidden
- Retail products will face heightened scrutiny
- Compliance is becoming a strategic advantage, not a cost
At CRYPTOVERSE Legal, we help crypto businesses translate these regulatory signals into regulator-ready strategies. Whether you are seeking licensing under VARA in Dubai, navigating MiCA in the EU, or preparing for UK market entry, the principles outlined in this Discussion Paper are increasingly universal.
Conclusion: Regulation Is Not the End of Crypto Innovation
The FCA’s Discussion Paper is not about stopping crypto. It is about ending uncertainty. By bringing crypto within a structured regulatory perimeter, the UK is signalling that crypto is no longer a fringe experiment. It is financial infrastructure, and it will be treated accordingly.
For serious builders and institutions, this is good news.
Clarity attracts capital.
Structure builds trust.
And compliance enables scale.
The future of crypto belongs to those who understand this shift early and build accordingly.
About CRYPTOVERSE Legal
At CRYPTOVERSE Legal, we help VASPs, Web3 founders, and institutions navigate crypto regulations in the UAE and across global hubs. From VARA and SCA to MiCA and MAS, we turn complex rules into clear, actionable licensing and compliance strategies. We are specialist crypto and virtual assets lawyers based in Dubai, providing end-to-end legal support from VASP licensing and token structuring to AML and cross-border regulatory strategy.
If you are launching, expanding, or restructuring your crypto business in a regulated world, we are here to help.