January 2025
Frameworks begin applying
The final months of 2024 saw major advances of cryptoasset regulatory frameworks in the EU and UK. After years of deliberation, the EU’s landmark package of reform the Markets in Cryptoassets Regulation (MiCAR) – is now live. This will soon be complemented by a permanent prudential regime for relevant exposures in credit institutions. The UK, which has consistently remained a second — mover, has now laid out a clear timeline for its own next steps. Specifically, the first of several expected discussion papers — on trading disclosures and market abuse – has been issued.
EU developments
The remaining elements of the Markets in Cryptoassets Regulation (MiCAR) began applying from 30 December 2024. A transitional regime embedded within MiCAR grants cryptoasset services providers (CASPs) additional time until 1 July 2026 to transition from existing national frameworks. However, certain Member States have opted to disapply or reduce this timeframe, resulting in a patchwork of different durations to be navigated. Firms that do become authorised under MiCAR will also need to comply with the Digital Operational Resilience Act (DORA) that went live earlier in January.
The implementation date for the BIS’s prudential standards for bank cryptoasset exposures has been deferred by one year until 1 January 2026. Despite push-back from industry, these standards require “unbacked cryptoassets and stablecoins with ineffective stabilisation mechanisms” to be subject to the highest possible one-for-one capital charges. There is also an overall limit on banks’ exposures to these types of assets.
To address this within the EU, the CRR3 had already introduced a transitional capital regime, applicable from July 2024. However, the EBA has now also launched a consultation further developing this capital treatment for various types of risk (credit risk, CCR, market risk and CVA risk) and seeking to align it more closely to the BIS. The consultation proposes specific risk weights – 250% for Asset-Referenced Tokens (ARTs) (to reflect their partial backing by traditional assets) and 1,250% for unbacked cryptoassets (to account for their volatility and “lack of intrinsic value”).
EIOPA has also published a consultation on equivalent capital requirements for insurers. Despite current cryptoasset exposures remaining immaterial (0.0068% of European insurers’ total investments), EIOPA is proposing a 100% haircut to any holdings – regardless of their balance sheet treatment and investment structure.
UK developments
Recent research from the FCA shows that crypto ownership in the UK continues to rise, with 12% of adults now owning these assets. More interestingly, a third of respondents incorrectly believe they could seek recourse with the FCA if something went wrong.
Since coming to power in July 2024, the Labour government has reiterated its intention of proceeding with majority of plans brought forward by the previous Cabinet. In short, a number of new cryptoasset regulated activities will be created based on equivalents in traditional finance. However, this work will now be combined into a single phase, rather than addressing stablecoins separately. And proposals to include stablecoins within UK payment regulations have been scrapped — due to lack of a viable ‘use case’.
To progress these plans, the latest FCA Roadmap indicates that 2025 will be a year of consultations, with final policy statements to follow in 2026. The first Discussion Paper in the series — DP24/4 on Admissions & Disclosures and the Market Abuse Regime — came out just before Christmas and aligns closely with the original HMT proposals.
Key highlights include:
- To trade a cryptoasset, an admissions document would need to be produced equivalent to the prospectus paperwork required for equities. This document would need to provide the “core information” a consumer needs to make an informed decision – including on risks, rights and underlying technology.
- The individual initiating the application to trading would become subject to the associated liability – including if this were the cryptoasset trading platform (CATP) itself. The liability standard would typically be negligence, with certain forward-looking statements treated as protected.
- The CATP would undertake due diligence on the relevant cryptoasset issuer, any other persons associated with the offer, and the content of the admission document. The CATP would then make a summary of this due diligence public, while taking its own decision on whether to approve or reject the application.
- Where the CATP is the person seeking admission to trading, all requirements should meet the same standards as for a third-party issuer. In addition, the potential conflict of interest should be disclosed.
- Once accepted, the admission documents would be filed on the National Storage Mechanism (NSM).
- An entirely new regime – MARC — is proposed based on UK MAR but tailored for cryptoassets. The FCA has emphasised that it’s not currently feasible for MARC to deliver the same regulatory outcomes as MAR due to the specific nature of cryptoassets — e.g., complications around identifying market price, absence of mechanisms to support transparent information, higher direct retail participation etc.
- MARC would include prohibitions on insider dealing, unlawful disclosure of inside information, and market manipulation.
- Issuers and persons seeking admission would be responsible for disclosing inside information.
Safe harbours and exceptions would be available for legitimate behaviours. - The FCA would not play a central role in the receipt and assessment of things like Suspicious Transactions and Orders Reports. The onus would be on CATPs and intermediaries themselves to implement systems to prevent, detect, and disrupt market abuse.
- Cross—platform information sharing would be facilitated through industry—led mechanisms.
With regards to a prudential framework, unlike the EU, until recently the UK was yet to make any progress. However, the BoE has now published a request for information on firms’ cryptoasset exposures – noting that this will be used to inform the calibration of their approach.
The government has announced plans to issue a digital gilt (DIGIT) within the recently-launched Digital Securities Sandbox.
Clarification has been made that cryptoasset staking does not constitute a Collective Investment Scheme – by introducing a Statutory Instrument before parliament.
The Law Commission’s draft Property (Digital Assets) Bill is currently being considered by the House of Lords. This Bill would confirm the existence of a “third” category of personal property, into which certain digital assets could fall, thereby giving investors increased legal protection.
And, the BoE have issued a progress update and blueprint design note on a prospective digital pound, after entering the ‘design phase’ back in January 2024. The decision of whether or not to actually issue a digital pound remains several years out – and could only come via new primary legislation.
What does this mean for firms?
Firms should firstly ensure that they have designed an appropriate regulatory authorisation strategy — i.e., identifying optimal jurisdictions in which to establish themselves. This should include considerations around transitioning from any relevant temporary regimes towards full authorisation. The strategy should also consider the connection to any wider operational resilience frameworks (e.g., DORA).
Firms can also begin building their capabilities around the preparation of trading admissions documentation—this is already required under MiCAR and will soon be required under the upcoming UK regime.
And firms can explore technological options to meet market abuse requirements. Regulators, particularly in the UK, have emphasised their support for the use of potential industry-led solutions.
How KPMG in the UK can help
KPMG in the UK can support firms – including both traditional finance firms and crypto native firms – with the wide range of challenges stemming from these developments. If you have any questions or would like to discuss further, please get in touch.
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