FCA Rules Remove Trust Protection From Yield-Lent Bitcoin

UK crypto firms can apply for FCA authorization from Sept. 30, ahead of a regime expected to begin Oct. 25, 2027. The rules finalized June 30 draw a consequential line for Bitcoin: qualifying borrowing collateral generally must remain safeguarded, while coins transferred into qualifying lending for yield can fall outside the trust requirement during the lending service.

Why it matters

The legal treatment depends on how the service works, not simply on whether a platform describes a product as Bitcoin-backed. For qualifying retail crypto borrowing, firms must safeguard relevant collateral. They cannot take full ownership to use the coins elsewhere unless the client gives express prior consent to transfer ownership to discharge debt, under a written, binding agreement, and the firm exercises that right. Until then, the safeguarding requirement remains.

Lending for yield involves a different arrangement: customers transfer crypto with a right or obligation to receive the same or equivalent assets back. Under CASS 17, a qualifying lending service can be exempt from acting as trustee for those assets while the service continues. When lending ends, the exemption ends too, but the return still depends on the agreement, timing and availability of the coins. The exemption does not set one creditor ranking for every customer.

Market impact

A CASS 17 trust can strengthen a customer’s basis to claim assets, but it cannot guarantee full repayment if assets are missing or costs reduce what is available. Reconciliation records can help identify client entitlements; firms must calculate what they owe each client, trust and asset class at least once each business day. The FCA generally expects shortfalls within a trust’s asset class to be shared proportionally among affected clients.

Authorization for these new crypto activities will not make them eligible for Financial Services Compensation Scheme protection. The Financial Ombudsman Service is a separate route for eligible complaints about firm conduct, subject to its rules. Firms can apply through the FCA’s Connect system, but applying is not authorization and does not bring the protections into effect. For Bitcoin holders, the agreement and service structure will determine whether coins are held in custody, pledged as qualifying collateral or transferred for yield. The FCA said it plans to consult later in 2026 on managing crypto firm failures, including distribution rules for failed custodians and stablecoin issuers.