Execution Matters: Paradigm's Response to FCA CP25/25

Ambition is easy. Execution is what matters. The U.K. has stated its crypto leadership goals; the FCA's Handbook application will determine if they're achievable.

Paradigm submitted our response to the FCA's Consultation Paper 25/25 on applying its Handbook to cryptoasset activities. The Chancellor has made clear that digital assets are part of the U.K.'s economic growth strategy to showcase its strengths in fintech and financial markets. But turning that vision into reality requires the FCA to get the details right.

Given the breadth of issues this consultation covers, we focused our response on three areas where regulatory clarity would have the most impact: DeFi, stablecoins, and permissionless infrastructure.

1. The FCA should define what "sufficient decentralization" means using clear, technical criteria. 

According to our research, 52% of traditional financial firms cite regulatory uncertainty as the main barrier to adopting DeFi. That’s true not just in America, but globally. DeFi remains in a regulatory fog as vast as the Atlantic Ocean.

The FCA should establish objective standards: absence of privileged admin keys, transparent on-chain governance, auditable upgrade mechanisms, decentralized validator nodes. As the CFTC's Technology Advisory Committee noted in their research report, decentralization exists on “a multi-level spectrum varying along each of the functional and technical dimensions”. The U.K. should adopt a flexible, principles-based approach that recognizes protocols can meet decentralization thresholds without achieving some theoretical perfect state. Clear standards create certainty. Certainty unlocks innovation.

2. Stablecoin regulation should be proportionate to actual risk.

Stablecoins are becoming a part of the global settlement infrastructure. With the U.S. GENIUS Act now law, international frameworks matter even more for cross-border interoperability and competitiveness.

Major currency-backed stablecoins pose no greater risk than traditional electronic money. Yet applying the FCA Handbook, built for traditional finance, without adaptation could impose impractical burdens. Rules around "fair value" assessment, custodial liability, and distribution oversight need tailoring for decentralized activity, not wholesale transplantation.

The FCA has made smart moves by excluding stablecoin issuers from “common platform” designation and exempting overseas branches from certain operational resilience rules. That direction should continue. Give the sector room to mature without compliance obligations designed for a different financial architecture.

3. Permissionless blockchain infrastructure requires base-layer neutrality.

The FCA rightly acknowledges that firms can't be held responsible for the operational resilience of permissionless blockchains. This isn't a loophole, it's recognition that permissionless infrastructure operates differently than centralized systems. It enables transparency, global participation, and trust through code rather than intermediaries. Regulation should respect that architecture, not attempt to retrofit it into traditional frameworks.

The Transatlantic Opportunity

Beyond these three priorities, the newly announced U.K.-U.S. Transatlantic Taskforce for the Future of Markets represents a real opportunity for coordination. To maximize its impact, we recommend the Taskforce draw on industry expertise when developing shared decentralization standards ahead of March 2026, establish a transatlantic sandbox for crypto activities, and work toward mutual equivalence between U.S. and U.K. regimes.

Done right, this collaboration could provide valuable clarity for firms operating across both markets. Clear DeFi standards, proportionate oversight of stablecoins, and understanding permissionless infrastructure are the building blocks of a competitive regulatory framework. The stated ambition is clear. Execution of these details will make the difference.

Paradigm looks forward to continued engagement with the FCA as this framework develops.

Read our full response to the FCA here.