UK's FCA Is Designing Prudential Requirements for Firms Carrying Out Crypto Activities

The U.K.'s Financial Conduct Authority (FCA) is designing prudential requirements for firms carrying out crypto activities.

The regulator, in charge of maintaining a registry of crypto firms approved for operations under the country's anti-money laundering requirements, will also consult on prudential rules for companies engaged in crypto activities once the "Treasury and Parliament bring those activities under our regulation," according to an annual report published Thursday.

The government, earlier this year, consulted on its plans for regulating the crypto sector, which included a proposal to set up prudential requirements for crypto intermediation services.

The FCA could set "minimum capital, liquidity and other relevant prudential requirements addressing both the potential for harm from on-going operations and the ability to wind-down in an orderly manner," for crypto companies, the consultation document said.

The regulator already has a prudential regime for investment firms like fund managers, asset managers and trading firms that are based in the U.K. The regime requires firms to assess capital adequacy and risk to identify potential harm to investors and provide appropriate resources to mitigate harm.

Last year, the FCA put out a notice for firms with exposure to crypto companies, urging them to "have appropriate systems and controls to counter the risk of being misused for financial crime," and review if the firms they work with are registered crypto companies.

The crypto consultation proposes bringing crypto regulated activities under the regulated activities order which means the FCA will have the powers to write and amend their current rules for people carrying out crypto activities. The FCA will consider how to apply its existing rules focused on consumer protection, custody, operational resilience and conduct among other things, someone familiar with the matter said.

The FCA, which was approved for a host of new powers under a recently passed financial markets bill, stands to be the U.K.'s key crypto watchdog as the country explores its ambition to be a global hub for the sector.

Read more: UK Banking Regulator to Propose Rules on Issuing, Holding Crypto

UPDATE( July 21 14:49 UTC): Adds information on U.K. crypto consultation to paragraph three, four and seven.