UK crypto firms can apply to the Financial Conduct Authority for authorization from September 30, 2026, under rules finalized June 30 that split the legal treatment of Bitcoin used as borrowing collateral from coins lent for yield. The applications open through the FCA's Connect system, but the substantive protections do not take effect until the new regime commences on October 25, 2027. Filing today does not by itself authorize a firm or bring safeguarding rules online.

How does the borrowing collateral rule work?

Under the forthcoming retail collateral rule, a firm providing qualifying cryptoasset borrowing must safeguard Bitcoin pledged by the client, either itself if it holds the necessary permission or through an appropriately authorized custodian. Neither the firm nor any other party can take full ownership of the coins unless the retail client has given express prior consent to an ownership transfer discharging that borrowing obligation.

A linked debt-discharge provision adds a second condition. A written, binding agreement must grant the firm the right to take ownership to discharge an obligation, and the firm must actually exercise that right in line with that agreement. Until that point, the coins remain subject to the safeguarding requirement.

The rule applies to qualifying cryptoasset borrowing, a defined service. The FCA's perimeter guidance says the legal substance of an arrangement and the participants' roles determine its characterization. Cash loans marketed as Bitcoin-backed do not automatically fall within the rule.

What changes when Bitcoin is lent for yield?

Qualifying cryptoasset lending moves in the opposite direction. A person disposes of cryptoassets to or through another person, with an obligation or right to reacquire the same or equivalent assets, typically earning yield.

Under CASS 17.3.4, a firm providing a qualifying lending service can rely on an exemption from acting as trustee for those assets during the service. Where the firm already holds the coins in a safeguarding trust, the rule lets it stop treating them as client cryptoassets while the exemption applies.

The exemption ends when the lending service ends, including when the client exercises a termination right. Actual return still depends on coin availability, agreed return timing and any access restrictions. For customers whose coins have moved into lending outside the required trust, a CASS 17 trust claim cannot be assumed. Recovery may instead depend on the contractual return right and the insolvency treatment that applies.

The lending exemption cannot be used for qualifying borrowing collateral. A separate exemption for other services requiring an ownership transfer is also unavailable for that collateral, closing routes that would otherwise weaken the safeguard.

Will authorization add FSCS protection?

No. The forthcoming Handbook glossary brings the new crypto activities into the definition of designated investment business for general Handbook purposes, then expressly excludes them when the definition is used in the compensation rules. The exclusions cover crypto safeguarding, arranging safeguarding, operating trading platforms, dealing and arranging deals in qualifying cryptoassets, stablecoin issuance and arranging staking.

Together with the protected-claim rules, that means authorization for the new crypto activities does not add FSCS investment compensation protection. The Financial Ombudsman Service remains a separate route under DISP 2.3, but eligibility addresses the firm's conduct rather than losses, and payment of any award still depends on the circumstances.

Custody of relevant specified investment cryptoassets will initially follow the separate CASS 6 requirements under the FCA's final policy overview. Different assets and service structures therefore fall under different custody provisions, and daily reconciliation obligations under CASS 17.5 require calculating what a firm must hold for each client, trust and asset class at least once each business day.

What comes next?

The Financial Conduct Authority said in its June policy overview that it would publish a consultation later in 2026 on managing cryptoasset firm failures, including distribution rules for failed custodians and stablecoin issuers. The shape of that failure and distribution framework, alongside the October 25, 2027 commencement, will determine whether the borrowing-lending split translates into materially different outcomes when a UK crypto platform collapses.