The FCA’s forthcoming cryptoasset regime under the Financial Services and Markets Act 2000 (FSMA) will significantly increase the conduct and governance expectations applying to firms operating within the UK digital assets sector. While much attention has focused on financial promotions and prudential regulation, firms seeking authorisation should not underestimate the importance of the FCA’s Consumer Duty requirements.
As we have said in respect of many aspects of the FSMA regime, firms transitioning from the current Money Laundering Regulations (MLRs) registration regime will see Consumer Duty as a substantial shift in regulatory expectations. Historically, many crypto businesses operated largely outside the UK’s mainstream retail conduct framework, whereas they will now face standards increasingly aligned with those applying across traditional financial services sectors.
The FCA’s expectations are clear: innovation within crypto markets does not diminish firms’ obligations to deliver fair consumer outcomes.
Consumer Duty and Cryptoassets
The Consumer Duty, introduced by the FCA in 2023, established a higher standard of consumer protection for retail financial services. At its core is Principle 12, which requires firms to “act to deliver good outcomes for retail customers.”
Although the precise application of Consumer Duty requirements to cryptoasset activities will continue to develop through future FCA rulemaking and consultation papers, regulators have already signalled that authorised crypto firms should expect significantly enhanced scrutiny regarding customer outcomes, communications, governance and operational delivery.
This reflects growing regulatory concern regarding consumer understanding of cryptoassets, particularly in relation to volatility, safeguarding risks, scams, operational failures and the absence of Financial Services Compensation Scheme (FSCS) protection.
The FCA has repeatedly highlighted concerns that many retail consumers continue to engage with crypto products they do not fully understand.
Consumer Understanding and Financial Promotions
Consumer understanding is likely to remain one of the FCA’s principal supervisory priorities.
The FCA’s cryptoasset financial promotions regime, introduced in 2023, already imposed stricter standards regarding risk warnings, appropriateness testing and cooling-off periods for retail consumers. Under the future FSMA regime, firms should expect the FCA to move beyond assessing technical disclosure compliance and increasingly focus on whether customer communications genuinely support informed decision-making.
This aligns closely with the Consumer Duty requirement that firms communicate information in a manner likely to be understood by retail customers.
Accordingly, firms are likely to face supervisory scrutiny regarding:
- the clarity of customer disclosures;
- prominence of risk warnings;
- fee and pricing transparency;
- onboarding journeys;
- appropriateness assessments;
- social media promotions; and
- the use of behavioural design within digital platforms.
The FCA has increasingly criticised practices that create artificial urgency, encourage speculative behaviour or minimise the risks associated with highly volatile cryptoassets.
For many crypto firms, this may require substantial changes to customer acquisition strategies, mobile application interfaces and marketing practices.
Products, Services and Target Markets
The Consumer Duty also requires firms to ensure that products and services are designed to meet the needs, characteristics and objectives of identified target markets.
Within the crypto sector, this creates particular challenges given the complexity and speculative nature of many digital asset products.
The FCA is likely to expect firms to demonstrate:
- clearly defined target markets;
- product governance frameworks;
- assessment of foreseeable customer harm;
- controls around high-risk products; and
- ongoing monitoring of customer outcomes.
Particular scrutiny is likely where firms offer leveraged products, staking arrangements, yield-generation models or highly speculative tokens to retail consumers.
The FCA has repeatedly indicated concern that some crypto business models rely heavily on retail customers engaging in high-risk activity without fully understanding the potential consequences.
As a result, firms may increasingly need to justify why certain products are suitable for retail distribution at all.
Price and Value Considerations
The Consumer Duty’s “price and value” outcome is also likely to become increasingly important for cryptoasset firms.
Historically, parts of the crypto sector have operated with relatively opaque charging structures, including spread-based pricing, token conversion fees and complex staking commission models.
Under Consumer Duty expectations, firms are required to assess whether customers receive fair value relative to the overall costs and benefits of products and services.
For crypto firms, this is likely to require enhanced scrutiny of:
- fee transparency;
- pricing methodologies;
- spread disclosures;
- conflicts of interest;
- affiliate arrangements; and
- incentives linked to customer trading activity.
The FCA is unlikely to object to profitable business models in principle. However, firms may face challenge where revenues appear dependent upon poor customer understanding, excessive trading behaviours or unclear pricing structures.
Importantly, regulators are increasingly focused on whether firms’ commercial incentives align appropriately with good customer outcomes.
Operational Resilience and Customer Support
The Consumer Duty also places significant emphasis on customer support and post-sale service quality.
Within crypto markets, operational outages, cyber incidents and delayed customer support responses have become recurring areas of regulatory concern globally. As firms enter the FSMA perimeter, the FCA is likely to expect customer support standards increasingly comparable to those operating within mainstream financial services.
This may include scrutiny regarding:
- complaints handling;
- fraud and scam response procedures;
- customer communications during incidents;
- vulnerable customer treatment;
- access to customer assets during disruption; and
- escalation arrangements.
Operational resilience therefore becomes closely linked to Consumer Duty compliance.
Where firms experience outages or safeguarding failures, regulators are increasingly likely to assess not only the operational causes but also whether customers experienced avoidable harm due to inadequate communication, governance or contingency planning.
Governance and Senior Management Accountability
The FCA has consistently emphasised that Consumer Duty is not simply a disclosure exercise or compliance checklist. Instead, firms are expected to embed customer outcomes considerations throughout governance and decision-making processes.
For crypto firms, this may require substantial changes to governance structures, particularly for founder-led businesses transitioning into fully regulated environments.
The FCA is likely to expect:
- board oversight of consumer outcomes;
- management information monitoring customer harm indicators;
- documented product governance processes;
- escalation frameworks for emerging risks; and
- accountability under the SM&CR.
The regulator has also indicated that firms should be capable of evidencing how customer interests are considered during product development, pricing decisions and operational changes.
This represents a significant evolution for parts of the crypto sector where rapid growth and product innovation have historically developed ahead of formal conduct governance arrangements.
Conclusion
As cryptoasset firms transition from MLR registration into full FSMA authorisation, regulatory expectations will extend well beyond financial crime compliance and financial promotions rules. The FCA is increasingly focused on whether firms can demonstrate consistently good consumer outcomes across product design, communications, pricing and operational delivery.
Ultimately, firms that treat Consumer Duty as a core strategic consideration, rather than simply a regulatory obligation, and can clearly evidence this, are likely to be best positioned for successful authorisation and long-term sustainability within the UK’s evolving cryptoasset regulatory framework.
How Complyport Can Help
Complyport supports firms preparing for the UK’s evolving cryptoasset regulatory framework, including applications for authorisation, Consumer Duty implementation, governance enhancement, SM&CR frameworks, financial promotions compliance and regulatory change management.
Our services include:
- Consumer Duty gap analysis and implementation programmes.
- Cryptoasset authorisation application support under the forthcoming FSMA regime.
- SM&CR framework design and Senior Manager responsibility mapping.
- Financial promotions reviews and approval support.
- Operational resilience and incident management reviews.
- Complaints handling and vulnerable customer framework assessments.
- Regulatory compliance audits and independent assurance reviews.
- Ongoing compliance support and outsourced compliance services.
To discuss how Consumer Duty may apply to your cryptoasset business and how to prepare for future FCA authorisation requirements, contact Complyport and book a meeting with one of our Subject Matter Experts today.
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