Regulation of cryptoassets: proposals concerning abuses in the cryptocurrency market and admission and disclosure regimes | Knowledge

As part of the UK Government’s efforts to develop legislation for a UK regulatory regime governing the crypto-asset sector, the UK Financial Conduct Authority (FCA) published the Discussion Paper on 16 December 2024 DP24/4, which concerns (i) future market abuse and (ii) admission and disclosure (A&D) regimes for crypto-assets. The proposal is part of the FCA’s wider regulatory roadmap for cryptoassets, which extends the FCA’s regulatory mandate beyond the current anti-money laundering and financial promotions regimes.

Admissions and Disclosures

The discussion paper proposes a new D&O regime with the aim of mitigating a range of risks, including financial crime, inadequate information and market integrity issues.

The UK Treasury is expected to introduce legislation prohibiting public offerings of cryptoassets in the UK unless one of the following exemptions applies:

• Offers of cryptoassets admitted or to be admitted to trading on a cryptoasset trading platform (CATP).
• Offers of cryptoassets qualifying for other exemptions and offered off-platform, for example, offers made only to qualified investors.

The D&A regime is designed to complement and align with other regulatory frameworks (such as the UK Financial Promotions Regime and Consumer Duty), without duplicating requirements. Furthermore, there is nothing in Discussion Paper DP24/4 to indicate a departure from the UK Treasury’s current proposals regarding the requirements for establishing CATPs in the UK.

Admission and Disclosure Documents

The D&O regime should include a “necessary information test” set out in law, requiring, at a minimum, disclosures on:

• Characteristics, prospects and risks of crypto-assets.
• Rights and obligations (if any) attached to cryptoassets.
• An overview of the underlying technology (including protocol and census mechanisms).
• If applicable and available, contact details of the person wishing to be admitted to negotiations on a CATP (which may be the CATP itself).

This information will form the content of the admission documents, and the FCA is considering introducing more detailed disclosure requirements in the FCA Handbook. In addition, the FCA proposes that CATPs define and implement their own more detailed content requirements for admission documents: the CATP would have responsibility for reviewing these admission documents to ensure that the requirements of the platform are respected. The FCA would not be involved in this process, and it recognizes that this could lead to variations in admission documents between CATPs (even when the documents relate to the same cryptoasset).

The discussion paper notes that the UK Treasury has proposed making those responsible for admissions documents liable (based on a negligence test) for the accuracy of the documents, which should give confidence to consumers who rely to this information. The FCA recognizes that this policy could discourage the disclosure of “decision relevant” information due to fear of prosecution, such as forward-looking statements. To address this problem, certain types of forward-looking statements could be “protected,” meaning that the burden of proof would shift to the consumer to establish that an issuer or offeror knew (or was reckless) that such a statement was false or misleading (that’s to say., imposing a liability risk lower than the negligence standard). The FCA proposes that the following forward-looking statements may be considered protected:

• Screenings, For example., the projected growth of the crypto-asset’s user base.
• Intentions such as plans to upgrade the underlying technology of the cryptoasset.
• Opinions about future events or circumstances, such as the anticipated impact of planned changes to other cryptoassets or technologies that may affect the cryptoasset in question.

Due diligence

The CATP would be required to carry out a “level of due diligence” on issuers and information provided to assess (i) whether a cryptoasset should be admitted to trading and (ii) whether the associated information is accurate and complete. The platform would make this due diligence public by means of a summary of the main findings of this due diligence. In the event of any overlap with the due diligence requirements of the financial promotions regime, the CATP will not be required to duplicate the due diligence requirements. For more information on the financial promotions regime, see our client alert of 23 October 2023 “Financial promotions on cryptoassets in the UK: FCA takes a strong stance on the application of new rules”.

Regarding due diligence disclosure, working paper DP24/4 envisages giving CATPs some latitude to determine what information should be included in the summary of key due diligence findings (For example., certain details concerning key individuals, or proprietary or commercially sensitive information).

The FCA notes that if a CATP fails to comply with requirements to exercise an appropriate level of due diligence or there is evidence of negligence or misconduct, the FCA retains the option to take supervisory or enforcement action. enforcement, if applicable, and consumers may also have the right to take private legal action.

Refusal of admission to trading

The FCA is considering requiring CATPs to refuse admission of crypto-assets if the platform considers there is a “significant risk” that admission could result in harm to the consumer. The proposed rules would require a CATP to evaluate a number of factors in the admission process, which would therefore inform the platform’s decision to reject admission of a cryptoasset, for example:

• The background of the issuer, offeror or person requesting admission, including any potential connection to fraud or scam.
• The main risks (For example., technological or governance) that may affect the price or operation of the cryptoasset.
• The rights and obligations attached to the crypto-asset, including the possibility of modifying them.
• Where the cryptoasset is supposed to maintain price stability, the structure of its price stabilization mechanism and the composition of all supporting assets.

Market abuse

The discussion paper further sets out a regulatory framework and approach to prevent, detect and disrupt abuse in the cryptoasset market – known as the Market Abuse Regime for Cryptoassets (ADR). This is based on elements of the UK Market Abuse Regulations (MAR), but adapted for cryptoassets. The FCA has observed the specific market abuse challenges presented by cryptoassets (For example., lack of a clearly identifiable asset issuer (such as Bitcoin)), which requires a market abuse regime distinct from that used for traditional financial instruments.

New MARC legislation, regarding crypto-assets traded on a regulated CATP, is expected to:

• Prohibit insider trading.
• Require disclosure of inside information.
• Prohibit market manipulation.

The FCA proposes that MARC covers:

1. Offenses and prohibitions similar to those that exist for traditional financial instruments under MAR.
2. Requirements for disclosure of inside information by the issuer or others seeking to admit cryptoassets to trading, including the potential creation of bespoke Primary Information Providers (PIPs) for the crypto industry.
3. Security rules and exceptions for legitimate behavior, including some existing rules under MAR that could be adapted and transposed into MARC, where appropriate, for crypto-assets (e.g. allowing delayed disclosure of inside information ).
4. Requirements for market participants to prevent, detect and disrupt market abuse, including the use of insider lists to monitor and control access to inside information. Companies will also need to have on-chain monitoring capabilities commensurate with their business activity, while maintaining flexibility in implementing this monitoring.
5. Requirements for systems and controls related to market abuse, in particular for CATPs and intermediaries. The FCA would oversee the compliance of CATPs and intermediaries with market abuse rules, as opposed to the more involved role the FCA plays in traditional securities markets.
6. A requirement for trading platforms to engage in information sharing to help deter and disrupt cross-platform market abuse. This includes private-to-private information sharing mechanisms (rather than one managed by the FCA).

Next steps

The FCA is seeking feedback from a number of crypto-asset stakeholders, both in the UK and overseas. The FCA also plans to engage stakeholders through a series of forums and meetings in the first quarter of 2025. The deadline for comments is March 14, 2025, after which we can expect the authority to draft a Draft FCA Handbook Rules for consultation.

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable national laws.