FCA Handbook - CRYPTOPRU 4.9 K-factor requirement for net cryptoasset position (K-NCP)

You are viewing CRYPTOPRU 4.9 K-factor requirement for net cryptoasset position (K-NCP) as it appeared on 25/10/2027. The current version of CRYPTOPRU 4.9 K-factor requirement for net cryptoasset position (K-NCP) was last updated on 25/10/2027.

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CRYPTOPRU 4.9 K-factor requirement for net cryptoasset position (K-NCP)

Scope

This section applies to a firm that enters into positions in a qualifying cryptoasset that are recorded in the trading book.

Purpose

(1) This section contains the minimum own funds requirement for market risk in qualifying cryptoasset positions.
(2) As part of the overall risk assessment, a firm should consider whether it needs to hold any additional own funds for its qualifying cryptoasset positions, having regard to the characteristics of each qualifying cryptoasset it trades.

Meaning of ‘position’

For the purposes of this section, a position in qualifying cryptoasset includes:

(1) any qualifying cryptoasset that a firm owns beneficially;
(2) any qualifying cryptoasset that a firm has an existing contractual right to receive in the future (for example, under an arrangement in which it has lent the cryptoasset to a client); and
(3) (in the case of a short position) any qualifying cryptoasset that a firm has an existing contractual obligation to deliver in the future (for example, under an arrangement in which it has borrowed the cryptoasset from a client).

(1) A firm that trades in qualifying cryptoassets in its own name, including where it does so on behalf of clients, must calculate the K-NCP requirement.
(2) A firm must calculate the K-NCP requirement even where it seeks to match or offset trades in such a way that it is not immediately exposed to movements in market prices.
(3) However, where a firm only executes trades in the name of the client, or as a custodian, it is not required to calculate the K-NCP requirement.

Managing the trading book

(1) The definition of trading book includes both a firm’s own proprietary positions and positions in its own name arising from client servicing. The FCA would therefore generally expect a firm’s positions in a qualifying cryptoasset to be recorded in the trading book. However, some holdings may be excluded, such as where the firm needs the qualifying cryptoasset to pay bills or other operating expenses.
(2) Where a UK QCATP operator engages in matched principal trading or other trading that is permitted by CRYPTO 6.6, these activities should be included in the trading book.

A firm must manage its trading book for qualifying cryptoassets in accordance with MIFIDPRU 4.11.3R, reading any references to ‘financial instrument’ as references to qualifying cryptoasset.

The requirement in CRYPTOPRU 4.9.6R applies when a firm values any qualifying cryptoasset held in the trading book for the purposes of both:

(1) calculating its own funds under COREPRU 3; and
(2) calculating any parts of the K-factor requirement under CRYPTOPRU 4.

General rule

A firm must calculate its K-NCP requirement by:

(1) identifying positions in qualifying cryptoassets which are in scope;
(2) netting positions in identical qualifying cryptoassets;
(3) expressing the value of each net position in its functional currency;
(4) calculating a requirement for each net position in each qualifying cryptoasset; and
(5) summing the resulting requirements for each qualifying cryptoasset.

Monitoring of K-NCP

A firm must be able to monitor its K-NCP requirement on an intra-day basis.

Positions in scope of K-NCP

A firm must calculate its K-NCP requirement by reference to any position it holds in the trading book in any qualifying cryptoasset, except:

(1) a position in a CASS 16 stablecoin;
(2) a position in a qualifying cryptoasset which has already been deducted in full under COREPRU 3; or
(3) a position in a financial instrument to which the firm applies the K-NPR requirement or the K-CMG requirement under MIFIDPRU, except where it applies the netting approach in CRYPTOPRU 4.9.15R.

Interaction between position risk requirements and own funds deductions

To avoid double-counting, if a firm has already deducted its position in a qualifying cryptoasset in full (for example, because it cannot prudently value the position in accordance with Article 105 of the UK CRR as applied by MIFIDPRU 4.11.3R), it is not required to calculate a K-NCP requirement for that position.

Interaction between position risk requirements in CRYPTOPRU and MIFIDPRU

(1) A firm may trade in both qualifying cryptoassets and financial instruments, in which case it may be subject to both CRYPTOPRU and MIFIDPRU, and may be required to calculate a position risk requirement under this section (K-NCP), and a position risk requirement under MIFIDPRU 4.12 (K-NPR) or MIFIDPRU 4.13 (K-CMG). Its total K-factor requirement will be the sum of all applicable parts of the K-factor requirement in those sourcebooks (COREPRU 4.4.1R).
(2) The FCA’s general policy is that such a firm should not be required to recognise the same exposure twice and should be permitted to net or offset positions appropriately.
(3) The definition of qualifying cryptoasset generally excludes a specified investment cryptoasset. This means that a tokenised financial instrument in the trading book will not be subject to the K-NCP requirement and will instead be subject to the K-NPR requirement or the K-CMG requirement.
(4) However, a firm may also hold a financial instrument which gives economic exposure to a qualifying cryptoasset – for example, a derivative over a qualifying cryptoasset, or a fund invested in a qualifying cryptoasset. In this case, CRYPTOPRU 4.9.10R(3) avoids double-counting by ensuring that such a position is only subject to one net position risk requirement.
(5) While a position in a financial instrument which gives economic exposure to a qualifying cryptoasset will generally be subject to the K-NPR requirement or the K-CMG requirement, CRYPTOPRU 4.9.15R allows a firm to include this position in its K-NCP requirement instead. This permits the recognition of potential hedging effects for exposures in identical qualifying cryptoassets.

Netting positions in an identical qualifying cryptoasset

A firm must not net long and short positions in a qualifying cryptoasset unless the positions are in an identical qualifying cryptoasset.

Qualifying cryptoassets are identical if they:

(1) enjoy identical rights in all respects; and
(2) are fungible with one another.

(1) This rule applies where a firm has:
1. (a) a position in a qualifying cryptoasset in scope of the K-NCP requirement; and
2. (b) a position in a financial instrument in scope of the K-NPR requirement or the K-CMG requirement which gives economic exposure to an identical qualifying cryptoasset as in (1)(a).
(2) Where this rule applies, a firm may:
1. (a) exclude the position which gives economic exposure to a qualifying cryptoasset from the K-NPR requirement or the K-CMG requirement; and
2. (b) include both positions in the K-NCP requirement, to arrive at its net long or short position in each qualifying cryptoasset.

(1) An example of the situation in CRYPTOPRU 4.9.15R is as follows. Firm Z has 3 of a particular qualifying cryptoasset. Firm Z has entered into a forward contract which gives it long exposure to 3 more of this qualifying cryptoasset. Firm Z is required to deliver 5 of this qualifying cryptoasset to a counterparty in 3 months’ time.
(2) Firm Z therefore has a net long position of 1 in the relevant qualifying cryptoasset.
(3) In effect, forward positions are treated as being equivalent to spot positions for the purposes of calculating the K-NCP requirement.

Where a firm has economic exposure to a qualifying cryptoasset through a fund, it may not apply the approach in CRYPTOPRU 4.9.15R unless it is aware of the actual qualifying cryptoasset the fund is invested in, and only nets off identical qualifying cryptoassets.

Calculating the K-NCP requirement

The K-NCP requirement for each net position in a qualifying cryptoasset must be calculated by multiplying the value for each net position in a qualifying cryptoasset (ignoring the sign) by 40%.

Point In Time

25/10/2027