My response to the FCA’s ‘Regulating Crypto Activities’ consultation — Staking Questions

Earlier this month the FCA announced its consultation on a range of cryptoasset topics; trading platforms to defi, staking to lending and borrowing and more.

This is all in a bid towards making more explicit crypto regulation in the UK and the ambition is to introduce these policy statements in 2026.

https://www.fca.org.uk/publication/documents/crypto-roadmap.pdf

Overview

The consultation paper provides a technically correct description of staking (which is always refreshing to read from government entities!) and specifically references this being an activity of proof-of-stake blockchains — this was also noted within the early 2025 HM Treasury guidance to carve out most staking activity from a collective investment scheme. This noted the products and services which claim to be “staking” but which are more akin to “token locking” as they have no protocol validating component.

The consultation provides an interesting statistic — as per a YouGov survey, 27% of adults who own cryptoassets in the UK have engaged in staking. This is an impressive stats and shows how accessible this has become to the average crypto holder — most often through the centralised exchange where they have purchased their cryptoassets. It also explains why it’s on the radar of the FCA.

Identified Risks

The paper notes a number of staking related risks:

• Slashing: the punishment applied to a validator if they break specific protocol rules around validator responsibilities and good practice.
• 3rd party provider reliance: where a technology provider is running the validation software and hardware and who may have reward distribution control to the staker.
• Consumer understanding: around the technological requirements for running a validator, the reward earning potential, and potential fees and penalties that could be applied.
• Lock up periods: where consumers may not understand the implications of not being able to access any staked assets or rewards.
• Recordkeeping by staking firms: which could result in challenges should the firm go into insolvency, or miscalculations about the earned rewards and assets to be returned to users post-staking.
• The paper also noted a potential risk around segregating staked assets and other consumer assets with a noted potential risk around the need to ringfence in the case of insolvency or hacking. However, this fails to acknowledge the technical segregating which would naturally happen with assets that are available to be transferred from the user’s account vs assets that are staked and so not movable as enforced at the protocol level, until unstaked.

Desired Outcomes

As with most regulation, the aims of this regime are to protect retail consumers — in this case specifically, from making staking related decisions which don’t match their risk appetite, from using services which carry technology or counterparty risks, and from fraud and malpractice.

What’s positive to see is an explicit mention that the regulations will also aim to help grow the staking market in the UK through “a clear regulatory regime” — following in the footsteps of MiCA in the EU which set forth clear (even if imperfect) rules for European crypto firms.

Regulatory Proposal

So what is the proposed staking regulation that the FCA is suggesting?

1. Any firm offering staking services will be responsible for covering any losses that arise from technological and operational resilience from 3rd party dependencies and must hold sufficient capital to cover this.

What could this mean?

If you’re an exchange or service and you’re outsourcing your staking infrastructure to a 3rd party provider who messes it up (and gets slashed or loses rewards from inactivity) then you need to have enough on your balance sheet to cover it.

My take?

This feels absolutely fair enough to put on services offering staking. It’s a product they will be charging their users for and if they are outsourcing the validation activity (as many sensibly do since it’s a highly technical activity) then it’s imperative that they choose a high quality provider who has the knowledge and experience to run validators successfully. This requirement to make consumers whole may also push firms to select staking providers who have the best record of validator performance but also insurance to cover against any slashing events or significant penalties/reward losses.

In my response to the FCA consultation I noted that this would bring retail staking closer in line to institutional staking where this is par for the course.

2. Firms must clearly state to users key staking details such as how much will be staked, lock up periods, potential rewards and any fee arrangements (such as platform staking fees and onchain commissions), and they must get explicit consent from the user before staking the funds.

What could this mean?

This shouldn’t be much of a change from what’s currently on offer to users however it helps bring all offerings up to the same level of transparency and clarity so that users can make informed decisions. Specifically the FCA notes the introduction of a “Key features document”.

My take?

Again, this feels very sensible and if firms were not already doing this then they really should have been. Staking is complex and users should be made aware of what it involves and what the risks and opportunities for it are.

Some specific examples called out in the paper are:

• That many consumers may not be familiar with the nuances of liquid staking and the transfer of assets (through smart contract or custodially) as part of this. (It will be interesting to see how the regs capture these connected offerings which are not protocol level activities but application layer innovations.)
• The paper also gives an example where firms have been staking user’s assets without their approval, and then keeping all rewards for themselves. The FCA states that it wants to stop this practice from occurring.
• They note that the staking and unstaking warm up and cool down periods differ per chain — some dynamic and some fixed, and that reward payout frequencies also differ. Plus some firms will add buffer for their own operational activities. But that this is likely not understood by many retail stakers and they may be under the false impression that their funds are as easily accessible as when they are unstaked.

The proposed route forward is to strengthen the existing Financial Promotion guidance with staking specific disclosures to ensure that users know what staking activity they are signing up to Whilst I like the spirit of this, it concerns me as an unintended consequence of the FinProm regs is that many crypto firms now geo-block UK users from their products (and even educational content) for fear of falling foul of the overly broad FinProm guidance. Unless the FinProm regs are made explicitly clear then we could see UK stakers locked out of staking products and services too so I recommended they review the current FinProm approach and if not changed apply any new staking regs outside its purview. In addition I recommended that explicit guidance be given on what consent looks like (a ‘Stake’ button or a T&C signature) and that firms should be able to use external resources (such as any staking FAQs by the protocol itself) rather than needing to create the key features document originally — and maintain it with any protocol changes.

3. Firms should have suitably robust bookkeeping to know who’s staking and earning what, and should maintain separate wallets for consumer’s staked assets.

What could this mean?

The crypto industry is no stranger to headlines where firms (normally exchanges) have lost track of consumer’s funds because of their napkin bookkeeping practices (FTX being a prime example!). So this feels another fair move to help bring everyone up to standard. The final element about segregating assets I’ll address below.

My take?

I’m all in on clear bookkeeping — I head up product for an institutional staking provider and we put precise staking position and reward reporting at the heart of what we offer. However this is incredibly complex with ETH having 12 reward and penalty types, an increasing number of chains having both execution and consensus rewards and a mixture of different epoch durations and reward payouts frequencies — this isn’t a straightforward task! So holding staking firms to a high standard here is important and ensures they either build a high quality approach in house or work with enterprise-grade firms who already do this. However I noted in my response the important distinction here on end-user identification between a non-custodial staking infrastructure provider vs the entity interfacing with the retail user. The former won’t necessarily have this informations ince it’s the proprietary information of the platform and could be GDPR impacting and clientbase revealing if they were forced to share this with the staking provider.

The consultation details out the need to segregate client’s staked and non-staked funds under the banner of “safeguarding”. In my response I comprehensively detailed the stalking routes for ETH, SOL and NEAR to highlight that whilst this is done defacto on Solana with the stake account concept it would be an unnecessary operational burden with transaction fees implications on protocols such as NEAR which have onchain information about the staked funds vs liquid funds in an account. I also noted the unintended consequence this could have for ETH staking whereby if client’s ETH must be segregated then every retail user would need a minimum of 32ETh for stalking since defacto for retail sizes they are pooled into one node of min 32ETH balance and, as per the protocol, each node has one withdrawal address — where this principal is returned to, and one fee recipient address — where the rewards are returned to. So co-mingling for retail native staking is unavoidable. I noted specifically in my response that innovations such as liquid staking and restaking should likely be covered within segregated accounts due to the added technical risk and this being application layer activity as opposed to core protocol functionality.

One notable element within the FCA’s consultation which is worth calling out is that this is for RETAIL staking activities. Any institutional staking is outside the purview of this document.

Another notable item in the consultation was the frequent mention of “regulated staking firm” however it was not made clear what firms would fall under the “regulated status”. This feels like a very important classification to help staking providers, staking offering companies and staking-adjacent services understand what their potential obligations in the UK and for UK customers may be.

The full 83 page consultation (which goes much broader than just staking) can be found here: https://www.fca.org.uk/publication/discussion/dp25-1.pdf and when the consultation closes all replies will be available on the FCA website — including my 3000+ words of response written to the Eurovision 2025 soundtrack.

Originally published at https://www.linkedin.com.