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. We urge both regulators to clarify key design elements to ensure the framework remains workable, commercially viable, and globally interoperable.
First, don’t force global firms to fragment their operations. The FCA acknowledges that major platforms operate global liquidity pools, but rigid location requirements that onshore entire trading books will fragment liquidity and raise costs for U.K. users. The FCA should clarify that U.K. branches can access global order books without requiring a separate U.K. trading stack. On stablecoins, the Bank of England faces a coordination problem: how will its regime align with MiCA and the GENIUS Act, and how will it avoid double-regulating foreign-issued stablecoins used by U.K. institutions? These questions need answers before finalization.
The FCA should define decentralization—and make room for DeFi. We welcome the decision to avoid a separate DeFi perimeter and apply outcomes-based standards wherever there’s a responsible controlling entity. To drive clarity, the FCA should articulate what decentralization 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—and these use cases should not be inadvertently constrained by a retail-focused framework.
60% falls short – The Bank should allow 80-90% backing in short-term gilts. The revised proposal allows up to 60% of backing assets in short-term U.K. government debt, which is an improvement from 2023 but still insufficient given market practices. Major stablecoin issuers today hold 80-90% of reserves in government securities, so a bias toward cash over gilts reduces issuer viability without meaningfully reducing risk. A higher proportion, up to 80-90%, would provide liquidity resilience without compromising par redemption, and a flexible, risk-adjusted range should be considered on a case-by-case basis.
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. Comparable constructs exist without these caps, and robust liquidity and capital regulation are better tools for monetary stability than fixed ex-ante limits. The Bank’s concern about deposit flight echoes earlier debates around money-market instruments, where liquidity management and supervision proved more effective than arbitrary caps. Holding limits should be a discretionary contingency deployed under defined stress conditions, not a permanent design feature.
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 apply outcomes-based standards wherever there’s a responsible controlling entity. 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—and these use cases should not be 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.
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