FCA Handbook - CRYPTO 2.4 Issuance and redemption

You are viewing CRYPTO 2.4 Issuance and redemption as it appeared on 25/10/2027. The current version of CRYPTO 2.4 Issuance and redemption was last updated on 25/10/2027.

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CRYPTO 2.4 Issuance and redemption

Application

The general application of CRYPTO 2 is set out in CRYPTO 2.1.

Purpose

This section sets out requirements and guidance for firms in relation to issuing a qualifying stablecoin, including the redemption of a qualifying stablecoin.

Issuance

A firm must not offer, or arrange for another person to offer, a qualifying stablecoin for sale or subscription (within the meaning of article 9M of the Regulated Activities Order) other than in exchange for money or a UK qualifying stablecoin.

Where a firm receives money or a UK qualifying stablecoin from a person for the purchase of a qualifying stablecoin, it must send a qualifying stablecoin to that person’s nominated blockchain address immediately and at reference value.

Redemption

A firm must redeem a qualifying stablecoin it has issued at any time on receipt of a valid redemption request.

A firm must ensure:

(1) that there is a contract between the qualifying stablecoin issuer and any person to whom it issues a qualifying stablecoin which clearly and prominently states the conditions of redemption, including any fees in relation to redemption; and
(2) that the obligations it owes under that contract to redeem that qualifying stablecoin are effectively transferred in law along with the qualifying stablecoin, such that when the qualifying stablecoin transfers to a new person, that person acquires the same rights against the firm in respect of the redemption of that qualifying stablecoin.

CRYPTO 2.4.6R does not require qualifying stablecoin issuers to enter into new bilateral contracts every time the qualifying stablecoin is transferred on the secondary market. There are a number of different mechanisms that could be used to comply with CRYPTO 2.4.6R(2). Firms could, for example, enter into a deed poll or provide for the legal assignment of the rights. The most appropriate model for a firm will depend on its particular circumstances and business model. Firms must ensure that whatever method they use is legally effective to ensure compliance with CRYPTO 2.4.6R(2).

The conditions of redemption must not:

(1) impose any minimum redemption quantity; or
(2) impose conditions which are onerous or difficult for a holder to meet.

(1) Examples of conditions which might be onerous or difficult to meet are:
1. (a) a contractual requirement to have an account with a particular UK credit institution before redemption can be carried out; or
2. (b) unreasonable restrictions to the payment methods made available to holders seeking redemption, such that the holder will incur unnecessary cost or difficulty in receiving or accessing their redemption sum.
(2) Examples of conditions which would not be considered onerous or difficult to meet are reasonable and proportionate processes to comply with requirements under the Money Laundering Regulations.

When a qualifying stablecoin holder enquires with a firm about redemption, the firm must provide appropriate information to that qualifying stablecoin holder about:

(1) the payment methods the firm makes available for redemption; and
(2) the likely timeframes within which the qualifying stablecoin holder will receive the redemption sum using those payment methods.

The information in CRYPTO 2.4.10R must be provided before the holder confirms the preferred payment method by which they will receive the redemption sum.

CRYPTO 2.4.10R and CRYPTO 2.4.11R apply to a firm even where that firm offers redemption through a third party. In these circumstances, one way of meeting these obligations is for a firm to ensure that a qualifying stablecoin holder receives information from a third party on the firm’s behalf.

In order to give a holder informed choice about which payment method to select, information about timeframes will not be appropriate unless it is based on research about past timeframes achievable by different payment methods, including recent historical data.

On receipt of a valid redemption request, a firm must ensure that redemption is completed:

(1) at the value of the redemption sum;
(2) unless the holder requests a different currency, in money (excluding electronic money) denominated in the reference currency; and
(3) as soon as practicable but no later than the end of the business day following the day on which the qualifying stablecoin is received.

For the purpose of calculating the redemption sum in CRYPTO 2.4.14R(1), the value of the backing asset pool is irrelevant.

A redemption request is valid if it is made:

(1) by the holder of a qualifying stablecoin; and
(2) in a manner which meets any terms and conditions in:
1. (a) the contract between the qualifying stablecoin issuer and qualifying stablecoin holder; or
2. (b) the mechanism used to comply with CRYPTO 2.4.6R(2).

Where the terms and conditions of the contract between the qualifying stablecoin issuer and the qualifying stablecoin holder, or of the mechanism used to comply with CRYPTO 2.4.6R(2), do not meet the requirements of CRYPTO 2.4.6R or CRYPTO 2.4.8R, those terms and conditions are to be ignored when considering the validity of the redemption request under CRYPTO 2.4.16R(2).

Unless CRYPTO 2.4.19R applies, for the purposes of CRYPTO 2.4.14R(3), a redemption is completed when a payment order instructing the transfer of the redemption sum from the firm to the holder has been made.

Where a firm operates a payment account for a holder and credits the redemption sum to that account without needing to transfer the redemption sum to another payment service provider, redemption is complete at the point the firm credits the redemption sum to the holder’s payment account.

The time limit in CRYPTO 2.4.14R(3) does not apply where:

(1) the completion of a particular redemption request within that time limit would cause the firm to be in breach of any legal requirement or court order, including those contained in or made under the Terrorism Act 2000, the Proceeds of Crime Act 2002 or the Money Laundering Regulations;
(2) all of the following are met:
1. (a) the holder of the qualifying stablecoin requests redemption in a currency other than the reference currency;
2. (b) the currency exchange required to meet that request takes more time to carry out than meeting a request in the reference currency; and
3. (c) the firm has made clear to the holder, at the point at which the holder enquired about redemption, the likely timeframe within which redemption in the currency requested will be completed; or
(3) redemption of the qualifying stablecoin is suspended under CRYPTO 2.4.24R.

Order of redemptions

A firm must complete redemptions in an order which is based on fair and objective criteria and which does not prejudice, directly or indirectly, the interests of any particular type of holder.

Security of redeemed stablecoins

Where a firm receives a qualifying stablecoin in the course of carrying out, or in connection with, a redemption, it must within 24 hours either:

(1) record that qualifying stablecoin as part of the relevant stablecoin pool; or
(2) ensure that the relevant qualifying stablecoin is burned.

Where a firm records a qualifying stablecoin as part of the relevant stablecoin pool under CRYPTO 2.4.22R(1), it must ensure it adds any money or assets to the relevant backing asset pool necessary to ensure compliance with CASS 16.2.1R(3).

Suspension of redemption

A firm must suspend all redemption where:

(1) there is an exceptional circumstance which threatens the integrity of the relevant qualifying stablecoin product or the interests of the holders of the relevant qualifying stablecoin product;
(2) the firm has taken all reasonable steps to respond to the exceptional circumstance in such a way that does not involve suspending all redemption; and
(3) the firm concludes on a proper basis that temporarily suspending all redemption is necessary to protect the rights of holders of a qualifying stablecoin or the integrity of that qualifying stablecoin.

Exceptional circumstances in CRYPTO 2.4.24R(1) are likely to include:

(1) the failure of the underlying distributed ledger technology or other infrastructure on which the qualifying stablecoin product relies;
(2) the failure of a system upon which the firm or a third party relies to carry out redemption;
(3) a sudden loss of confidence in the relevant qualifying stablecoin product such that the firm or a third party who carries out redemption on behalf of the firm receives an exceptionally high number by volume or value of redemption requests; or
(4) the insolvency of the firm.

Exceptional circumstances in CRYPTO 2.4.24R(1) are unlikely to include:

(1) the suspension of trading of the relevant qualifying stablecoin product on a secondary market, unless that suspension of trading is caused by a sudden loss of confidence in that qualifying stablecoin product as set out in CRYPTO 2.4.25G(3); or
(2) the insolvency of a third party carrying out redemption on behalf of the firm, unless that insolvency threatens the integrity of the relevant qualifying stablecoin product or the interests of the holders of the relevant qualifying stablecoin product.

(1) Where the exceptional circumstance in CRYPTO 2.4.24R(1) causes, or is caused by, an inability of the firm to resolve a shortfall in accordance with CASS 16.4.15R(2), reasonable steps for the purposes of CRYPTO 2.4.24R(2) would include the firm exploring whether it can source additional resources or liquidity in order to continue to meet redemptions.
(2) Where a third party carrying out redemption on behalf of a qualifying stablecoin issuer becomes insolvent in a way that amounts to an exceptional circumstance (eg, through threatening the interests of holders), reasonable steps for the purposes of CRYPTO 2.4.24R(2) would include the firm exploring whether redemption of the relevant qualifying stablecoin product can continue through other third parties or directly by the firm.

A firm which suspends redemption must:

(1) immediately notify the FCA as to:
1. (a) the fact it has suspended redemption;
2. (b) the period of time for which it is anticipated that redemption will be suspended; and
3. (c) the reason why it has suspended redemption; and
(2) immediately notify in writing all third parties who carry out redemption on the firm’s behalf.

All third parties who carry out redemption on behalf of a firm should be informed where a decision to suspend all redemption is taken.

A firm that has suspended redemption must restart redemption as soon as possible, but no earlier than when:

(1) a reconciliation has been completed which confirms that CASS 16.2.1R(3) is satisfied in respect of the backing asset pool; and
(2) the firm has:
1. (a) formulated a plan as to how and when it will restart redemption;
2. (b) promptly submitted the plan in (a) to the FCA, ensuring a reasonable period between submission and restarting redemption, and in any event not less than 5 business days unless a shorter period is agreed with the FCA; and
3. (c) assured itself that the reason notified to the FCA under CRYPTO 2.4.28R(1)(c) for the suspension of redemption has been remedied and is no longer likely to impact the firm’s ability to meet redemption requests.

The plan referred to in CRYPTO 2.4.30R(2) should at least cover the following:

(1) the firm’s forecast as to the anticipated number of redemption requests within the 14 redemption days which follow the restarting of redemption;
(2) the proportion of the backing asset pool that is held, and that should continue to be held, in core backing assets, and the period over which any adjustments needed to that proportion of core backing assets will take place;
(3) how proposed adjustments to the proportion of core backing assets could impact on the markets for expanded backing assets or core backing assets over the period set out in (2);
(4) consideration as to how the firm meets, and will continue to meet, wider obligations under the regulatory system; and
(5) an explanation as to how the firm has assured itself of the matter at CRYPTO 2.4.30R(2)(c).

Redemption fees

Redemption may be subject to a fee only where:

(1) the fee is:
1. (a) stated in the contract between the qualifying stablecoin issuer and the holder of the qualifying stablecoin in accordance with CRYPTO 2.4.6R(1); or
2. (b) provided for by the mechanism used to comply with CRYPTO 2.4.6R(2); and
(2) the fee is proportionate and commensurate solely with the operational costs actually incurred by the qualifying stablecoin issuer in respect of that redemption and does not include costs or losses incurred through the sale of core backing assets or expanded backing assets.

A firm must not charge a fee for redemption that is greater than the value of the qualifying stablecoins to which that redemption request relates.

Point In Time

25/10/2027