Getting the Details Right: Paradigm’s Response to the FCA and Bank of England

Governments worldwide are moving quickly to shape the future of stablecoins and cryptoassets. With the GENIUS Act passed in the U.S. and MiCA under implementation in Europe, the U.K. needs its own framework to stay competitive. With the Bank of England’s consultation paper on systemic stablecoins and the Financial Conduct Authority’s (FCA) consultation paper on cryptoassets activities, the U.K. is taking a significant step toward a comprehensive framework. Despite these steps, several regulatory decisions risk the U.K. falling behind. Paradigm submitted our response to both the Bank’s and FCA’s consultation. We support the U.K.’s ambition to become a global center for digital assets. The Chancellor is right that crypto can play a role in economic growth – the question is whether the regulatory details will match the rhetoric. Both regulators need to provide greater clarity to ensure the framework works as intended and remains compatible with other major regulatory regimes.  

Here’s where the Bank and FCA can improve their framework:

1. Global firms shouldn’t have to split their operations.

Overly restrictive location requirements could force firms to separate their U.K. operations from their global trading activity. Not only would costs increase for U.K. customers, but jurisdictions with integrated cross-border operations would receive an advantage over U.K.-based firms. The rules should clarify that a U.K. branch can connect to global order books to avoid creating a separate trading system for the U.K. market. The Bank will need to lay out how its rules will work alongside MiCA and the GENIUS Act, focusing on foreign-issued stablecoins used by U.K. firms. Without clear rules, firms could face duplicative regulatory measures from the Bank.

2. The FCA needs to provide a clear test for decentralization.

Applying regulatory requirements when an identifiable entity exercises control is a realistic starting point for regulating DeFi. To do this, the FCA will have to define control and decentralization. This means using objective, technical indicators such as whether a protocol has privileged administrator keys, how it makes governance decisions, and how widely it distributes validation responsibilities. Wholesale and institutional DeFi shouldn’t be unintentionally caught in outdated rules, given that smart-contract protocols can support liquidity provision, collateral management, and post-trade processing.

3. 60% falls short – The Bank should allow 80-90% backing in short-term gilts.

The latest proposal allows for up to 60% of backing assets in short-term U.K. government debt, which is an improvement compared to the originally suggested 100% central bank deposits. Major stablecoin issuers currently hold between 80 and 90% of their reserves in government securities. Requiring issuers to forgo yield without making reserves meaningfully safer would weaken the commercial case for operating in the U.K. 

Short-term gilts and central bank deposits share very similar credit profiles and liquidity characteristics – both are safe and liquid, and the rules should reflect that. A model that prioritizes cash over government securities sacrifices issuer viability without a commensurate reduction in systemic risk; it’s the financial equivalent of the security theater we do at airports of making people take their shoes off. We encourage the Bank to consider evidence from international equivalents on whether a higher proportion, up to 80-90%, would provide sufficient liquidity resilience without compromising par redemption.

We also encourage the Bank to consider replacing a fixed 60:40 ratio with a flexible, risk-adjusted range determined on a case-by-case basis. This would allow the Bank to mitigate risks associated with issuer liquidity management and redemption delays while demonstrating openness to competitive commercial models. We do not generally apply one-size-fits-all models to other parts of fiscal regulation, especially when it comes to payment instruments; we should not similarly flatten regulations on stablecoins.

4. Holding limits are a solution in search of a problem.

The proposed per-coin holding limits, £20,000 for individuals, £10 million for businesses, risk constraining innovation before it even starts. This is a product for payments. How would Tesco, a supermarket that was the third-largest in the world in 2011 and had $69 billion in revenue in 2025, stay within these limits?

Comparable constructs already exist without these caps. Money market funds, narrow banks, and payment firms all hold short-term, liquid assets that match their liabilities at par value. None face fixed ex-ante holding caps. The risks to monetary stability are best mitigated through robust liquidity and capital regulation, not arbitrary balance restrictions.

The Bank's concern of potential deposit flight from the banking system echoes earlier debates around money market funds, where experience shows that liquidity management tools and supervisory monitoring proved more effective than arbitrary limits. At its worst, limits risk signaling instability to users, contradicting the Bank's objective of building trust between new and traditional forms of money.

We urge the Bank to treat holding limits as a discretionary contingency deployable under defined stress conditions, not a permanent design feature.

5. The FCA should clearly define what it means to truly be decentralized.

We welcome the FCA's decision to avoid a separate DeFi perimeter and instead apply outcomes-based standards wherever there's a responsible controlling entity. But to drive clarity, the FCA should articulate what "decentralization" actually means using objective, technical criteria: no privileged admin keys, transparent on-chain governance, auditable upgrade mechanisms, and sufficiently distributed validators.

The biggest opportunity for the U.K. may lie in wholesale and institutional DeFi—smart-contract protocols for liquidity provision, collateral management, and post-trade processes. The FCA should ensure these use cases aren't inadvertently constrained by a framework designed for retail.

What Comes Next

The U.K.-U.S. Transatlantic Taskforce provides an ideal forum to align standards before both regimes are finalized. We recommend the FCA and Bank of England draw on industry expertise, explore a transatlantic sandbox for crypto activities, and seek a path toward mutual equivalence with the U.S.

Get these details right, and the U.K. becomes a serious destination for crypto firms. Get them wrong, and London watches this market develop from the outside.

Read our full response to the Bank of England here and to the FCA here.