Final rules for new UK crypto regime: a prudential regime for cryptoasset firms

This policy statement confirms the finalised prudential regime rules which will sit in the new Core Prudential sourcebook (COREPRU) and the Prudential sourcebook for CRYPTOPRU firms (CRYPTOPRU) in the FCA handbook. Again, as with the other policy statements, in the main the proposals have been taken forward but with some targeted changes and clarifications to the framework proposed in the consultation, in response to stakeholder feedback on particular points. Some key changes to note include the following:

• The operational risk K-factor capital requirement for firms issuing qualifying stablecoin (K-SII) has been reduced from 2% to 1%.
• To reflect the extension of the regulatory perimeter to safeguarding both qualifying cryptoassets and specified investment cryptoassets, the name of the K-factor for safeguarding has been updated from K-QCS (qualifying cryptoassets safeguarded) to K-RCS (cryptoassets safeguarded) (although there has been no change to the K-factor capital requirement for firms carrying on safeguarding activities).
• The market risk framework has been simplified, with the K-NCP (net cryptoasset position) for cryptoassets which are admitted to a UK qualifying cryptoasset trading platform and which can be prudently valued subject to a single 40% position risk adjustment (cryptoassets not meeting these criteria will attract full capital deduction).
• A further simplification to the framework is the K-CCD (cryptoasset counterparty default) now comprises a single 40% volatility adjustment for cryptoassets meeting the relevant criteria (cryptoassets not meeting the criteria will be subject to 100% volatility adjustment for K-CCD).
• the definition of “cryptoasset order”—which is relevant to K-CCO (cryptoasset orders) and applies to orders firms receive and transmit or execute on behalf of clients - has been amended to exclude orders that only include UK qualifying stablecoins, recognising their money-like use; and
• The public disclosure framework has been pared back, with firms whose own funds requirements is the permanent minimum requirement being exempt from detailed disclosures, and disclosure of internal own funds threshold requirement and liquid asset threshold requirement figures no longer needing to be published.

The policy statement was accompanied by two further consultations on non-handbook guidance GC26/4: COREPRU Guidance Consultation and GC26/5: CRYPTOPRU Guidance Consultation, in response to feedback requesting clarification on the overall risk assessments under the new rules.