Potential impacts of regulatory developments on the business models of Crypto Asset Service Providers for the week ending 23 January 2026

James Ross
3 days ago
3 min read

1. EXECUTIVE SUMMARY

The regulatory landscape for the week ending 23 January 2026 indicates a definitive fracturing of global operating models. The era of a single, unified global platform serving all jurisdictions via offshore licenses is functionally over.

UK (Bearish): The Financial Conduct Authority (FCA) has effectively closed the “reverse solicitation” window. New proposals force a binary strategic choice for Crypto Asset Service Providers (CASPs): capitalise a full UK subsidiary with local substance or exit the retail market entirely.
APAC (Structural Shift): Japan’s pivot to the Financial Instruments and Exchange Act (FIEA) is a game-changer.By inviting mega-banks into the sector, the competitive moat of crypto-native exchanges has been eroded, necessitating a pivot toward B2B infrastructure models.
USA (Bullish): The joint SEC/CFTC “harmonisation” initiative signals a strategic end to “regulation by enforcement.” This creates a pathway for integrated Spot & Derivatives business models, potentially unlocking significant institutional volume.

2. DEEP DIVE

(Priority analysis of top 3 strategic impacts)

1: UK “Location Policy” & Credit Ban (FCA CP26/4)

The Development: On 23 January, the UK FCA released Consultation Paper 26/4 proposing a strict “Location Policy.” This requires overseas firms to establish a locally authorised UK entity with physical presence to serve retail clients. Simultaneously, the proposal includes a ban on retail crypto-credit products.
The Business Impact: This represents a structural break for international exchanges relying on offshore licensing frameworks. The “reverse solicitation” loophole—previously used to onboard UK clients without local authorisation—is effectively dead. CASPs must immediately bifurcate operations. The strategic choice is binary: commit significant CAPEX to stand up a full UK subsidiary with local senior management (SM&CR requirements) or implement strict geo-blocking for the UK market.
The Revenue Reality: Negative.
- Margin Compression: Operational costs will spike due to the requirement for local staffing and compliance infrastructure.
- Product Attrition: High-margin “Lending” and “Margin Trading” revenue streams—historically accounting for 15-20% of exchange P&L in this region—will vanish for the UK retail cohort due to the credit ban.

2: Japan’s “Type I” Shift: The Bank Entry (FSA)

The Development: The Financial Services Agency (FSA) announced the transition of crypto-asset regulation to the Financial Instruments and Exchange Act (FIEA). This reclassifies crypto-assets as “Type I” securities, explicitly permitting major banks and insurers to enter the custody and trading market.
The Business Impact: The regulatory moat that protected crypto-native exchanges in Japan has evaporated. CASPs are no longer competing with fintech startups; they are now in direct competition with trusted giants like Mitsubishi UFJ and SMBC. To survive, CASP’s strategy must pivot from B2C to B2B—focusing on white-labelling custody technology for these banks rather than competing with them for retail order flow.
The Revenue Reality: Competitive Compression.
- Fee War: Expect custody fees and trading spreads to race to the bottom as banks enter the market with cross-subsidised, loss-leading pricing to capture market share.
- New Streams: While retail margins will collapse, this opens a lucrative B2B revenue stream for CASPs that can license their infrastructure to traditional financial institutions.

3: US Regulatory Harmonisation (SEC/CFTC)

The Development: On 22 January, the SEC and CFTC announced a joint initiative to “harmonise” oversight of digital assets. The goal is to dismantle jurisdictional silos and create a unified registration pathway for hybrid assets that possess characteristics of both securities and commodities.
The Business Impact: This development lowers the barrier to operating a “Universal Exchange” model. Firms may no longer need to artificially segregate spot and derivatives platforms, or to strictly separate custody functions, to avoid “double jeopardy” enforcement from conflicting agencies.
The Revenue Reality: Positive.
- Product Expansion: This unlocks institutional product lines, such as tokenised securities and hybrid derivatives, that were previously too legally risky to list.
- Cost Reduction: It significantly reduces the legal “war chest” required to operate in the US, as the unpredictability of enforcement actions is expected to decline.

3. WATCHLIST: REVENUE THREATS (NEXT 14 DAYS)

Immediate (UK/EU): Interchange Fee Cap

Event: High Court ruling (22 Jan) upholding the cap on cross-border interchange fees.
Revenue Threat: “Crypto Debit Cards,” which rely heavily on high interchange fees to fund user rewards (cashback), may become loss-making.
Action: Immediate review of rewards program sustainability is required to prevent negative unit economics.

Immediate (North America): Stablecoin Yield Squeeze

Event: Bank of Canada ban on stablecoin yield (22 Jan) and US Treasury demand for AI surveillance (23 Jan).
Revenue Threat: “Earn” products for North American users must be restructured or suspended. This will kill Net Interest Margin (NIM) derived from stablecoin lending in these jurisdictions.

27 January 2026 (USA): SEC/CFTC Joint Event & Senate Markup

Event: Scheduled joint agency appearance and Senate markup session.
Revenue Threat: Closely monitor the proposed statutory definition of “Digital Commodity.”
- Risk: A broad definition imposes immediate, costly registration requirements on a wide swath of assets.
- Risk: A narrow definition leaves many assets in legal limbo, hindering listing strategies.