FCA CP25/42: Prudential Regime for Cryptoasset Firms — Capital, Liquidity, and the K-Factor Framework for the UK's New Crypto Perimeter
Credit: prosegur
The FCA's second prudential consultation for cryptoasset firms extends the framework to trading platforms, intermediaries, and staking firms and raises concerns about competitiveness against MiCA.
Context:
On 16 December 2025, the FCA published Consultation Paper CP25/42 — A Prudential Regime for Cryptoasset Firms, the second of two consultation papers on prudential requirements for firms that will be authorised under the UK's new FSMA cryptoasset regulatory regime. It follows CP25/15 (published May 2025), which covered prudential rules for stablecoin issuers and custodians. Together, CP25/15 and CP25/42 form the complete prudential framework for all regulated cryptoasset activities. Responses were requested by 12 February 2026. Final rules in policy statements are expected in 2026.
CP25/42 focuses on the remaining regulated cryptoasset activities: operating a qualifying cryptoasset trading platform (CATP), dealing as principal or agent, arranging deals, and arranging qualifying staking. These activities which cover the vast majority of crypto exchange businesses, brokers, and service providers, have not previously been subject to FCA prudential oversight, as they currently operate outside the FSMA perimeter.
The consultation generated significant industry concern, particularly from crypto market-makers and trading platform operators, who argued that the proposed capital treatment is materially more onerous than the equivalent requirements under MiCA and risks making the UK a less competitive location for crypto activity compared to EU, US, and Asian alternatives. The FCA has committed to reviewing calibration concerns in its policy statement.
Rules and Guidelines:
The prudential framework proposed in CP25/42 applies a tiered approach based on activity type and scale. For CATPs and dealing firms: firms are subject to an ICARA (renamed 'Overall Risk Assessment' or ORA) process equivalent to the ICARA under the Investment Firms Prudential Regime (IFPR). Capital requirements are expressed via K-factors, including K-AUM (assets under management), K-COH (client orders handled), K-ASA (assets safeguarded and administered), and K-CMH (client money held). These factors result in capital requirements that scale with business volume.
For staking and arranging firms, requirements are simpler, reflecting the lower systemic risk profile. Firms must maintain permanent minimum capital and wind-down plans, but are not subject to the full K-factor framework. For the trading book: CP25/42 proposes that firms trading cryptoassets as principal must manage trading book positions under a framework drawing on IFPR market risk rules, including additional value adjustments for highly volatile crypto positions.
Group reporting: CP25/42 introduces group disclosure requirements for crypto groups, building on the disclosure rules in CP25/42 (replacing the group prudential consolidation approach initially proposed in CP25/15). The key change from CP25/15 is the renaming of ICARA to ORA, which is intended to distinguish the crypto process from the investment firm equivalent while maintaining substantive equivalence.
Businesses Affected:
Crypto exchange operators (CATPs) face the most significant capital requirements under the K-factor framework and their business models will need to be reviewed for capital adequacy from October 2027.
Arranging and intermediary firms face the lowest capital burdens, but still need to implement prudential governance infrastructure.
Existing FCA-authorised firms expanding into crypto activities must assess whether their current IFPR or Solvency UK capital is sufficient or whether additional crypto-specific capital will be required.
Next Steps:
Review the K-factor calibration against your business model now. The FCA has indicated it will address competitiveness concerns in the final policy statement. Firms with quantitative evidence of material divergence from MiCA equivalent requirements should engage proactively.
Begin ORA/ICARA process design for your crypto activities. The ORA requirement goes live in October 2027. Firms should begin developing their assessment methodology, governance documentation, and capital forecasting frameworks well in advance.
Assess wind-down planning requirements. All crypto firms will need credible wind-down plans demonstrating how client assets can be returned, and operations wound down in an orderly manner. This is operationally complex for firms with large custodied asset books.
Monitor final policy statement timing (expected summer 2026), calibration changes to the K-factor framework could materially alter capital requirements and may require a rapid operational response.
Source | FCA | Consultation Paper - Cryptoasset firms
