UK crypto firms can now apply for authorization under the FCA's incoming regime, but the protections themselves are expected to take effect on Oct. 25, 2027. The rules treat Bitcoin pledged as loan collateral differently from Bitcoin handed over for yield: collateral must stay in a safeguarding trust, while qualifying lending services can use an exemption from that same requirement.
UK crypto firms can apply for authorization as of Sept. 30, moving Bitcoin holders closer to a rulebook that treats coins pledged as borrowing collateral differently from coins transferred into lending for yield. The distinction could matter if a platform fails, because safeguarded assets and a contractual promise to return equivalent coins leave customers with different starting points for recovery.
The Financial Conduct Authority now lets firms apply for authorization or vary their permissions through its Connect system. However, the safeguards in the rules it finalized June 30 remain forthcoming, with the new regime expected to begin Oct. 25, 2027. An application today does not establish authorization or bring those protections into effect.
Pledged coins must stay safeguarded
Under the future framework, the FCA's retail collateral rule requires a firm providing qualifying cryptoasset borrowing to arrange safeguarding for relevant collateral, either itself or through an authorized custodian. The firm cannot simply take full ownership of pledged Bitcoin to deploy it elsewhere unless the retail client gives express prior consent to a transfer that discharges debt from that borrowing service.
A related debt-discharge provision adds a further condition: a written, binding agreement must grant the firm the right to take ownership, and the firm must actually exercise that right as agreed. Until it does, the coins stay subject to the safeguarding requirement. Pledging Bitcoin, therefore, does not automatically turn it into the platform's freely usable inventory.
Lending can change the customer's claim
Qualifying cryptoasset lending moves assets the other way: a person disposes of cryptoassets with an obligation or right to reacquire the same or equivalent assets, typically earning yield. Under CASS 17.3.4, a firm providing a qualifying lending service can be exempt from acting as trustee for those assets while the service runs, and may stop treating already-safeguarded assets as client cryptoassets during that period.
The exemption ends when the lending service ends, but actual return still depends on the availability of coins, the agreed timing and any access restrictions. Crucially, this lending exemption cannot be used for qualifying borrowing collateral — the rulebook blocks that route from undermining the collateral safeguard. For a customer whose coins moved into lending outside the required trust, a CASS 17 trust claim cannot be assumed; recovery may instead depend on the contractual return right and applicable insolvency treatment.
Authorization brings no FSCS cover
The compensation boundary survives the move to authorization. In the future Handbook glossary, the FCA folds the new crypto activities into designated investment business for general purposes, then expressly excludes them when that definition applies to the compensation rules. The exclusions cover crypto safeguarding, arranging safeguarding, operating trading platforms, dealing in qualifying cryptoassets, stablecoin issuance and arranging staking — so authorization for these activities does not add Financial Services Compensation Scheme protection.
The Financial Ombudsman Service remains a separate route: DISP's jurisdiction rules can permit eligible complaints about regulated activities, subject to applicable conditions, but payment of any award still depends on the circumstances. The FCA also said in its June policy overview that it would consult later in 2026 on managing cryptoasset firm failures, including distribution rules for failed custodians and stablecoin issuers.
Whether a Bitcoin holder recovers anything after a platform collapse will still turn on the arrangement they signed and the assets left to pay out.
Source: CryptoSlate
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