Stablecoins are Global - Paradigm’s Response to FCA 26/13
The U.K. has made it clear that they want to be a global hub for digital assets. HM Treasury, the Financial Conduct Authority (FCA), and the Bank of England have all begun developing rules to protect consumers without slowing down innovation in the sector. However, parts of the FCA’s latest consultation paper on cryptoasset perimeter guidance, CP 26/13, make it harder for global firms to operate in the U.K.
1. The guidance fragments global firms rather than bring them onshore.
CP 26/13 removes the overseas persons exclusion for cryptoasset activities and broadens what must occur onshore in the U.K. As a result, global firms may need to create a separate infrastructure and establish local legal entities, even if U.K. activity is only a small portion of the firms' overall volume.
Crypto markets require a globally integrated infrastructure to truly flourish, whereas this guidance suggests going against how crypto markets fundamentally operate. Far more crypto companies seeking to operate in the U.K. will be from abroad than local, contrary to this proposal's assumptions. The current proposal is a recipe for chaos and fragmentation, breaking the promise of global crypto markets. Fragmenting markets makes the U.K. a less competitive jurisdiction for global cryptoasset firms due to the eventual increases in costs and liquidity reduction. Under the new guidance, firms that are already regulated under similar regimes like MiCA or the GENIUS Act should be able to rely on those regulatory structures for U.K. perimeter purposes. 2. The exemption for stablecoin settlement is too narrow.
HM Treasury provides an exemption for qualifying U.K.-issued stablecoins from the dealing and arranging perimeter. Unfortunately, this excludes all USD-pegged stablecoins that make up a majority of cross-border settlements since they are issued offshore.
The exemption discourages the U.K. from participating in global liquidity pools and makes it much harder for the U.K. to become a global hub for cross-border cryptoasset activities. The guidance should be updated to reflect that overseas-issued stablecoins used for back-end settlement, should meet the exemption requirements for “dealing”.
3. The definition of “arranging” is too broad and could impact open-source software.
CP 26/13 treats firms that provide only “part of the facilities” for a transaction as carrying on arranging activity. Inadvertently, non-custodial wallets, interfaces, APIs, white-label front ends, and other related software tools could be regulated despite the fact that they don’t hold customer assets nor control execution. This is akin to arguing that anyone who rides on a plane needs the training that pilots need for their license; it is overkill.
This interpretation goes beyond what the Treasury’s statute clearly requires and risks creating a significant chilling effect on software development in the U.K., both for crypto and broader internet-native financial infrastructure. Providing access to a protocol in and of itself doesn’t constitute arranging activity.
What Comes Next
The U.K. still has a real opportunity to position itself as a gateway market for global crypto firms entering Europe. Most major crypto companies remain U.S.-incorporated, and initiatives like the U.K.-U.S. Transatlantic Taskforce for the Future of Markets can help build workable approaches to substitute compliance and mutual recognition ahead of the September authorization window. But the clock is ticking; the U.K. should act with alacrity to seize this moment and become the financial corridor for crypto between the new world and the old.
Read our full response to the FCA here.