Cracking CASS 16: The New Playbook for Stablecoin Issuers in the UK

July 16, 2026

What is CASS 16?

The Client Assets Sourcebook (CASS) is a highly detailed set of regulations developed by the UK’s Financial Conduct Authority (FCA) to ensure that regulated financial firms safely hold, safeguard and segregate client funds and custody assets in the event of the firm’s insolvency. Historically, CASS has been used to govern traditional financial services firms in the UK.

The new cryptoasset regulatory regime established by the Financial Services Markets Act 2000 (Cryptoasset) Regulations 2026 (the “Cryptoasset Regulations”) brings stablecoin issuers within the scope of CASS 16 and firms acting as a third-party custodian holding stablecoins and other qualifying cryptoassets under CASS 17. This means that UK stablecoin issuers and firms safeguarding qualifying cryptoassets must follow these soon-to-be introduced (25 October 2027) safeguarding frameworks that provide greater consumer protection and market confidence. With the digital asset industry historically plagued with the collapses of firms like FTX, TerraUSD and similar cryptocurrency businesses, these new regulations could bring a welcome change.

This article focusses on the CASS 16 framework for the issuance of non-systemic qualifying stablecoins. As described in our article From Experimental to Established: Breaking Down the UK’s New Cryptoasset Regime, the entire regime centres around the fundamental definition of a “qualifying cryptoasset”. This is defined as any fungible (interchangeable) and transferable (can be moved/traded between parties) digital representation of value or contractual rights that can be transferred, stored, or traded electronically and relies on recording technology like distributed ledger technology (DLT) (a blockchain). Stablecoins are a subset of a qualifying cryptoasset. A “qualifying stablecoin” is defined as a digital, fungible, and transferable “qualifying cryptoasset” that seeks to maintain a stable value relative to a particular fiat currency where fiat currency or other assets such as gilts are held for the purpose of maintaining a stable value. USDC (USD Coin) and USDT (USD Tether) are current examples of stablecoins that dominate the market.

In the future, if a UK-issued stablecoin gains wider adoption and becomes integral to day-to-day life in the UK for payments, transfers and other daily transactions, then the stablecoin could be recognised as systemic by HM Treasury. This may lead to additional Bank of England supervision as a mishap with the issuer could lead to disastrous consequences for users or the economy.

The FCA’s final rules are expected to apply to authorised firms under the new regime from 25 October 2027.

CASS 16 Requires Full 1:1 Backing of Stablecoins

At the heart of CASS 16 will be a simple principle: every qualifying stablecoin must be fully backed on a 1:1 basis.

For every unit of a sterling-referenced stablecoin issued, there must be a corresponding unit (or equivalent qualifying reserve asset) held in reserve. The backing assets must be denominated in the same fiat currency as the stablecoin. For example, a sterling-backed stablecoin should be supported by sterling-denominated reserve assets. This supports the maintenance of the stablecoin’s peg and strengthens confidence in its value. The FCA requires UK stablecoin issuers to maintain full backing from the moment a stablecoin is minted, including stablecoins held by the issuer itself. This removes any distinction between issuer-held and publicly held tokens and reduces the risk of mismatches between the circulating supply of stablecoins and the assets supporting them.

Where backing assets are held with third-party custodians, issuers must obtain acknowledgement letters from those custodians before assets are deposited. The backing asset pool must also be held under a statutory trust arrangement, ensuring that reserve assets are protected for the benefit of token holders.

How CASS 16 Protects Stablecoin Holders Through Asset Segregation

One of the most significant consumer protection features of CASS 16 is the requirement that backing assets are segregated from the issuer’s own assets.

Backing assets are not client money and must not be mixed with client money held under the existing CASS 7 regime. Instead, they sit within a dedicated backing asset pool. This arrangement creates several important protections:

the issuer acts as trustee and owes fiduciary duties in relation to the backing assets;
the backing assets must be managed in accordance with the trust and for the benefit of token holders;
the backing assets remain separate from the issuer’s own estate; and
the backing assets are ring-fenced from claims by the issuer’s general creditors if the issuer becomes insolvent.

In practical terms, this means that consumers should enjoy a greater degree of protection if an issuer experiences financial distress. The reserve or backing assets supporting the stablecoin should remain available for redemption rather than being absorbed into the issuer’s insolvency estate.

Record-Keeping and Daily Reconciliation Requirements Under CASS 16

Stablecoin issuance is a dynamic process, with tokens continuously being minted and redeemed. To ensure that backing remains accurate, CASS 16 requires comprehensive records and reconciliation processes.

Issuers must maintain clear and accurate records showing:

what assets should be safeguarded;
the value of those assets;
where the assets are located;
who holds them; and
any discrepancies identified through reconciliation processes.

Importantly, issuers are required to perform both internal and external reconciliations on a daily basis. These reconciliations must compare the amount that should be held in reserve against the assets actually held, including assets held by third-party custodians.

The objective is to provide an end-to-end framework that allows firms and regulators to identify shortfalls or discrepancies quickly and take remedial action before consumers are affected.

Managing Stablecoin Reserve Asset Excesses and Shortfalls

Recognising the operational realities of stablecoin issuance, the FCA has introduced a degree of flexibility into the regime. Although firms must maintain 1:1 backing, CASS 16 permits a limited excess in the backing asset pool of up to 5% of the relevant stablecoin pool’s value. Any excess within this limit may remain in the backing pool and will continue to benefit from the statutory trust protections.

Allowing a limited excess to remain in the backing asset pool means that the firm will need to transfer assets out of the pool less frequently. The 5% cap places a clear limit on the size of any excess, ensuring that the backing asset pool remains appropriately aligned with the relevant stablecoin pool.

Shortfalls, however, are treated very differently. Any deficiency in the backing asset pool must be addressed promptly, whether by transferring additional funds into a backing funds account or adding qualifying assets to the backing asset pool. Delays increase the risk of consumer harm and could undermine confidence in the stablecoin’s ability to meet redemption requests.

Stablecoin Redemption Rights and T+1 Requirements

To support confidence in UK-issued stablecoins, CASS 16 requires issuers to redeem qualifying stablecoins within T+1 (one business day after a valid redemption request). The FCA views this redemption right as central to maintaining trust in stablecoins and ensuring that token holders can access the underlying value represented by their holdings.

The redemption requirement does not apply where doing so would breach anti-money laundering obligations. However, while issuers must conduct necessary AML checks, the FCA has made clear that firms should not create unreasonable barriers or unnecessary delays in the redemption process.

Alongside these redemption obligations, stablecoin issuers will also be subject to prudential requirements, including maintaining capital linked to the level of stablecoins in circulation.

CASS 16 also contains important contractual requirements. A stablecoin issuer must have a contract in place with those to whom it issues stablecoins. That contract must clearly set out:

the conditions governing redemption; and
the issuer’s obligation to redeem the stablecoin.

Crucially, the redemption rights must continue effectively as the stablecoin moves between holders. This helps ensure that token holders retain enforceable redemption rights regardless of how many times the stablecoin changes hands in the secondary market.

What CASS 16 Means for UK Stablecoin Issuers

With the FCA seeking to address many of the weaknesses exposed by high-profile failures in the digital asset sector, CASS 16 represents a significant step in the maturation of the UK’s cryptoasset framework.

For issuers, the regime introduces substantial operational and compliance obligations. For consumers and market participants, however, it provides something that has often been missing from the crypto ecosystem: a clear regulatory framework designed to ensure that a stablecoin claiming to represent one pound is, at all times, genuinely backed by one pound. In a post-FTX environment, that confidence may prove to be one of the most valuable features of all.

To understand how the incoming CASS 16 regulations may apply to your business, or to get expert legal advice on FCA authorisation for your cryptoasset business, please contact us.

Mark Chapman

General Counsel, Head of Commercial & Regulatory

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This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.