“Since it uses existing rules, it will be much less of a stand-alone framework,” Lightstone said. “A crypto firm will be treated like any normal traditional financial institution,” adding that “it will still be difficult to get FCA authorization.”
For established banks and investment firms that already operate under these rules, adapting to crypto can be relatively straightforward. For newer crypto companies, the costs of building governance, capital and custody systems from scratch can prove significantly more burdensome.
This challenge is particularly evident in the FCA’s proposed regime for client assets using the Clients Asset Sourcebook (CASS) framework, which would require firms to segregate clients’ crypto assets from firm funds under trust arrangements, while introducing crypto-specific operational safeguards around private keys and reconciliations.
“The CASS requirements are very onerous,” Lightstone said. “It could encourage the newcomers to merge [with]be acquired by a traditional firm that is already subject to CASS and has these controls in place.”
Bank adoption
The prospect of consolidation comes as banks themselves appear more willing to move into digital assets now that regulatory uncertainty is beginning to rise.
“Today there are less than 20% of all banks in Europe [that] offer any kind of crypto services today, so it is severely underserved,” said Simon Schneider, CEO of Sygnum Europe.
