The UK FCA has implemented a "dual entity" regulatory scheme for cryptocurrency platforms (CATP).

The UK Financial Conduct Authority (FCA) published the discussion paper "Regulating Cryptoasset Activities" (DP25/1) in May 2025, systematically revealing for the first time the operational baseline of the "Qualified Crypto Trading Platform" (CATP):

Any exchange targeting retail customers in the UK must operate under a "UK branch + UK subsidiary" dual entity model;

Must adopt non-discretionary matching, zero proprietary trading, and immediately disclose order book and transaction information.

The deadline for comments is June 13, 2025.

UK Compliance Conditions – Licenses and Physical Presence

The report stated that the encryption trading platform (CATP) must establish authorized branches and subsidiaries in the UK (UK branch × UK subsidiary).

"The UK authorized branch will handle functions critical to the operation of CATP, allowing orders from UK investors to interact with orders from overseas investors." "The UK subsidiary can handle certain other customer-facing functions, such as customer onboarding and electronic currency issuance, or other ancillary or complementary activities."

Targeting the UK branch (responsible for matchmaking) and UK subsidiary (responsible for customer interface) Legal form Parent company as a "branch" in the UK; without independent legal personality. A subsidiary registered in the UK with independent legal personality. Core functions Matchmaking, trading and settlement, connecting UK investors to global liquidity pools. User registration, KYC, customer service, e-money issuance and other retail functions. Regulatory focus Market behavior, technical resilience, collaboration with home country supervision. Consumer protection, conflict management, data security and compensation mechanisms. Investor benefits Deep liquidity and price efficiency. Local legal relationships and more secure complaint and compensation.

The key significance of doing this is:

Liquidity vs. Protection: Branches ensure depth, subsidiaries provide retail protection, balancing international competitiveness and regulatory accessibility.

Conflict isolation: If market making is still needed within the group, it can be placed in a subsidiary with a firewall to reduce the risk of conflicts of interest.

UK Regulatory Matching Mechanism: "Fully Non-Discretionary"

The FCA plans to prohibit the platform from exercising subjective judgment on orders; all CATP must be automatically matched according to predetermined rules, and cannot independently decide "when, with whom, and how much" to match, in order to eliminate differential treatment and black-box operations.

UK Proprietary Trading Zero Tolerance: Three Layers of Firewall

Prohibition of proprietary trading within the platform: The platform itself is not allowed to market or place orders in its own matching pool.

Off-exchange proprietary trading is restricted: Off-exchange positions may still affect on-exchange prices, and there is a need to strengthen isolation and disclosure.

Associated market making isolation: allows independent legal entities to make markets, but requires legal/operational isolation and full disclosure.

The FCA simultaneously questioned the feasibility of Matched Principal Trading (MPT) and sought alternative solutions from the industry. Matched Principal Trading (MPT) refers to the practice where an investment firm trades with a client on its own books while immediately hedging with an equal and opposite trade in the market or with another counterparty, thereby reducing market risk to nearly zero.

Role Price Risk Fund Flow Regulatory Classification (EU MiFID II Example) Agency (Pure Agency) No Assumption Customer Market/Liquidity Provider "Receive and Pass On", "Execute Customer Orders" Matched Principal (MPT) Nominal Position, but Immediately Hedged with Equal Counter Position → Net Risk ≈ 0 Customer Dealer Liquidity Provider Treated as Proprietary Trading (dealing on own account); Must Apply for MPT or Proprietary License and Meet Higher Capital/Reporting Requirements Full Principal (Inventory/Market Making) Continuous Naked or Net Position, Assuming Market Risk Customer Dealer (Position) Proprietary or Market Making License (More Stringent)

UK demands transparency standards: pre-quote + immediate disclosure of transactions

Complete order book disclosure (pre-trade) + transaction information (post-trade), and provide access rights under "fair and reasonable conditions."

Platforms and intermediaries must retain order/transaction records for 5 years and make them available for FCA inspection at any time.

Protect retail investors, automated trading needs to be constrained.

Retail customers must establish a legal relationship with the UK subsidiary, and the platform assumes all consumer protection obligations.

For automated traders (Algorithmic trading), CATP must identify and sign contracts that bind continuous pricing and risk management.

Entering the UK industry may face impacts.

Targeting the rising costs of IT transformation, compliance manpower, and data infrastructure. Strict local requirements will drive the market towards "monopolization by advantageous operators"; small and medium platforms may need to seek mergers or focus on niches. Timeline 2025-06-13: Consultation deadline 2025 Q4: Release of formal consultation document (CP) Starting in 2026: Expected phased implementation.

The FCA is attempting to bring cryptocurrency exchanges into a governance framework equivalent to that of the securities market. Exchanges may need to plan early to establish branches and subsidiaries in the UK and restructure their matching and market-making processes. Investors who trade on the licensed CATP in the UK in the future will benefit from deeper liquidity and protections closer to traditional finance.

This article discusses the "dual entity" regulatory scheme imposed by the UK FCA on encryption trading platforms (CATP), which first appeared in Chain News ABMedia.