PERG 18 Guidance on regulated cryptoasset activities

Question 1.1: Who does this chapter apply to?

This chapter is relevant to:

Question 1.2: What is the purpose of this guidance?

The purpose of this chapter is to give guidance about the circumstances in which authorisation may be required in relation to cryptoasset activities, including guidance on the new regulated cryptoasset activities that have been brought into the perimeter by the Cryptoassets Regulations and on the exclusions that may apply.

This chapter is intended to help readers navigate the perimeter by explaining, at a general level, how the authorisation requirement under the Act is approached and how the cryptoasset perimeter fits within that overall framework. It does this by:

Question 1.3: What is this status of this guidance?

PERG is issued as guidance. As explained at PERG 1.3.1G, it represents the FCA’s views and does not bind the courts. This guidance reflects the FCA’s interpretation and understanding of the perimeter set by Parliament in legislation and of how it applies to regulated cryptoasset activities.

In forming its views, the FCA takes account of the text, context and purpose of the relevant legislative provisions and any relevant case law. The FCA’s interpretation of the perimeter is informed by established principles of statutory interpretation. The FCA does not determine the scope of the perimeter by reference to preferred policy outcomes.

This guidance sets out the FCA’s view of how the statutory perimeter applies to regulated cryptoasset activities under the relevant legislation in place from time to time. It does not create, widen or narrow the regulated activities, specified investments, exclusions or exemptions set out in legislation. PERG can explain how the FCA interprets the legislation, but it cannot change the underlying legislation – for example, by creating a new exclusion that does not exist in the legislation itself.

Question 1.4: How does the FCA maintain and update this guidance?

The FCA keeps its general guidance under review and may amend or withdraw published or written guidance where necessary or appropriate. In particular, where changes are made to the Act or relevant secondary legislation, the FCA will consider whether any amendments to this guidance are needed to reflect those legislative changes. The FCA may also review its guidance in light of developing business practices, changing circumstances or case law.

Legislative provisions relevant to qualifying cryptoassets may be amended from time to time. This chapter reflects the FCA’s understanding of the legislation at the relevant time and may be updated where legislative changes make this necessary. Readers should therefore monitor relevant legislative and case law developments and, where appropriate, seek their own legal advice where they are uncertain as to the effect of those developments on their activities.

Question 1.5: How should this guidance be used?

Although PERG 18 gives guidance about regulated cryptoasset activities, as explained at PERG 1.2.2G, it does not aim to, nor can it, be exhaustive. References have been made to relevant provisions in the Act or secondary legislation. However, since reproducing an entire statutory provision would sometimes require a lengthy quotation, or considerable further explanation, many provisions of the Act, or secondary legislation made under the Act, are summarised. This chapter should therefore be read alongside the Act, the Cryptoassets Regulations and other relevant secondary legislation, to which readers should refer for the precise scope and effect of any provision discussed in this chapter. Readers should consider seeking appropriate professional advice if doubt remains.

Cryptoasset business models vary significantly, and perimeter outcomes can depend on individual facts. This chapter is therefore intended to assist readers in identifying the relevant statutory principles and applying them to their own arrangements.

In particular, terminology in the cryptoasset sector can be used inconsistently. Whether an activity is regulated will generally depend on what a person does in substance and the role they perform in the relevant arrangements, rather than on the label used to describe the service. Contractual terms and other documentation may be relevant evidence of what a person does or undertakes to do, but labels will not of themselves be determinative.

Because the application of the perimeter often depends on the particular facts and circumstances, it is not possible for this guidance to address every business model, arrangement or technological structure. This chapter is intended to assist readers in analysing whether activities fall within the perimeter established by legislation. However, it is not intended to provide a definitive answer in every case, or address every possible business model or factual scenario.

The guidance therefore focuses on the statutory concepts and principles that the FCA considers relevant to the assessment, rather than attempting to provide an exhaustive treatment of all possible scenarios. It should not be read as eliminating all uncertainty or as addressing every question that may arise in relation to particular arrangements. It will always be the responsibility of any person to ensure they have the correct permission(s) (or are exempt) for the activities they intend carrying on.

Question 1.6: Is there anything else we should read?

Readers should familiarise themselves with the Cryptoassets Regulations, the Act and the Regulated Activities Order, in addition to reading this chapter of PERG.

Readers should also refer to the general perimeter material in PERG 1 and PERG 2. PERG 1 explains (among other things) the status of FCA perimeter guidance. PERG 2 provides a high-level route map through the main factors that determine whether authorisation is needed (including the ‘by way of business’ test, the link to the UK and the role of exclusions). Guidance specific to cryptoassets and cryptoasset-specific activities relevant to these considerations is set out in this chapter, but, to understand the broader context in which these considerations operate, reading PERG 1 and PERG 2 is helpful and necessary.

Where a cryptoasset is also a specified investment, the guidance in PERG 2 on specified investments and other regulated activities will often be relevant, because activities carried on in relation to specified investments can amount to regulated activities even where the asset is represented or recorded using cryptoasset technology. The guidance in PERG 13 may also be relevant for the purposes of determining whether a cryptoasset is a financial instrument, in its various forms.

Cryptoassets are also captured in other regimes, such as the Money Laundering Regulations and the Financial Promotion Order. While the perimeters of these different regimes may be similar, they are not identical, and so persons carrying on activities relating to cryptoassets should also consider whether their activities fall within the scope of these regimes. PERG 18.12 provides guidance on the Money Laundering Regulations. PERG 8 provides guidance on the financial promotions regime.

Question 1.7: What is the cryptoasset regulatory perimeter?

The regulatory perimeter is set by Parliament as contained in legislation. It determines which activities require authorisation under the Act and which do not.

In general terms, a person will usually need to be authorised under Part 4A of the Act if they are carrying on a regulated activity in the United Kingdom by way of business and no exclusion or exemption applies.

The Cryptoassets Regulations expand the perimeter by introducing new regulated activities relating to cryptoassets and by introducing new statutory concepts relevant to those activities, including ‘qualifying cryptoassets’ and ‘qualifying stablecoins’. As a result, some cryptoasset activities which previously fell outside the perimeter may now require authorisation when carried on by way of business in the UK (unless an exclusion or exemption applies).

The Cryptoassets Regulations also use the term ‘specified investment cryptoasset’ for a cryptoasset that is also a specified investment(other than a qualifying cryptoasset). Where a cryptoasset is a specified investment cryptoasset, activities carried on in relation to it may fall within the existing perimeter (as explained in PERG 2), as well as within any cryptoasset-specific provisions, where relevant.

The guidance in this chapter is intended to provide views on the new regulated cryptoasset activities introduced by the Cryptoassets Regulations. However, cryptoassets may also fall within other perimeters, such as the scope of the Money Laundering Regulations and/or the financial promotions regime (see PERG 18.1.8). It is not necessarily the case that because activities carried on in relation to cryptoassets are within the scope of one of these perimeters they will necessarily also be within the scope of any other perimeter(s) that include activities carried on in relation to cryptoassets. See also PERG 18.12 for guidance relating to the Money Laundering Regulations.

Question 1.10: How are cryptoasset activities different from, and how do they relate to, other regulated activities?

The Cryptoassets Regulations introduce a set of new regulated activities that are distinct from, and additional to, the regulated activities that already exist under the Regulated Activities Order.

The regulated cryptoasset activities include (among other things):

Question 1.11: How do I know if I should be authorised?

Whether a person needs to be authorised generally depends on a number of factors that must be considered together. A helpful way to approach the perimeter is to ask the following questions:

Question 1.12: Do labels and terminology matter for perimeter purposes?

Cryptoasset sector terminology (for example, ‘exchange’, ‘custody’, ‘wallet’, ‘broker’, ‘issuer’ or ‘platform’) may be used inconsistently and may not map neatly onto statutory concepts. Whether an activity is regulated will depend on what a person does in substance and the role they perform in the relevant arrangements, rather than on the label used.

For that reason, a functional assessment will often be required. Factors that may be relevant include the rights and obligations created by the arrangements, who contracts with the customer and how transactions are in fact executed or facilitated.

In this chapter (and in the Cryptoassets Regulations), terminology may be used for different purposes. In particular, in considering whether certain regulated cryptoasset activities are carried on ‘in the United Kingdom’, the legislation refers in places to a ‘UK consumer’. That term is used for the territorial analysis under section 418 of the Act and is not intended to map directly onto the client categorisation terminology used in the FCA Handbook.

Question 1.13: What does ‘consumer’ mean?

For the purposes of the relevant section 418 provisions, ‘consumer’ is a statutory concept. It focuses on whether the person is an individual in the United Kingdom acting for purposes other than in the course of a trade, business or profession. This is therefore a test concerned with the nature of the person and the capacity in which they are acting, for the specific purpose of determining whether a regulated activity is treated as carried on in the United Kingdom.

By contrast, the FCA Handbook uses several terms in relation to consumer, client and customer for different sourcebooks. These are distinct from the term used in the Act, the Regulated Activities Order and the Cryptoassets Regulations in relation to regulated cryptoasset activities. The FCA Handbook uses client categorisation concepts such as ‘client’, ‘retail client’, ‘professional client’ and ‘eligible counterparty’ for the purpose of applying conduct and organisational requirements in the FCA Handbook. Those categories can apply to both individuals and non-individuals and are used for different regulatory purposes than the territorial concept of a ‘UK consumer’.

As a result, the same individual may be a ‘consumer’ for the purposes of the territorial analysis under section 418 (for example, because they are acting outside any trade, business or profession), even though they may be categorised differently for other regulatory purposes under the FCA Handbook (for example, where an individual is treated as a professional client under the client categorisation rules). The section 418 ‘consumer’ concept should therefore be applied for what it is: a statutory territorial concept, used to determine when certain regulated cryptoasset activities are treated as carried on in the United Kingdom.

Question 1.14: I intend to carry on regulated cryptoasset activities in the UK. How does the authorisation and registration process apply to me?

The process of applying for Part 4A permission is available on the ‘How to apply for authorisation or registration’ page of the FCA website. A list of the activities for which permission may be given can be found in PERG 2 Annex 2. Persons may find this helpful in providing an overview of the regulated activities for which permission may be needed. See also PERG 18.12 for guidance relating to Money Laundering Regulations registration.

Question 1.16: I am registered under the Money Laundering Regulations for cryptoasset-related activities. What should I do?

A firm with existing registration under the Money Laundering Regulations as a cryptoasset exchange provider or custodian wallet provider should consider the guidance in this chapter to determine what permission(s) it may need. Once it has made that determination, the firm will need to apply for authorisation under Part 4A of the Act in order to carry on one or more of the regulated cryptoasset activities by way of business in the UK (unless an available exclusion or exemption applies to those activities). The firm will also need to notify the FCA within 30 days of the regime commencing if it intends to continue acting as a cryptoasset exchange provider or custodian wallet provider.

A firm that is registered as an Annex 1 financial institution under the Money Laundering Regulations and that proposes to undertake one or more regulated cryptoasset activities by way of business in the UK will be required to be authorised under Part 4A in respect of those regulated cryptoasset activities (unless an available exclusion or exemption applies to those activities). The firm must also notify the FCA if it intends, or begins, to act as a cryptoasset exchange provider or custodian wallet provider either before, or within 28 days of, doing so. A firm cannot be both an Annex 1 firm and an authorised person (see regulation 55(2) (Power to maintain registers) of the Money Laundering Regulations).

Question 2.1: How do I know if an activity is carried on ‘by way of business’?

The consequence of the general prohibition is that only persons who carry on any regulated activities in the UK by way of business need to be authorised or exempt. PERG 2.3.3G provides guidance on factors that are relevant to the meaning of ‘by way of business’ in section 22 (Regulated activities) of the Act. These factors are relevant for considering when a regulated activity carried on in relation to specified investment cryptoassets will be carried on by way of business, as well as when a regulated cryptoasset activity is carried on by way of business. These include the degree of continuity of the activity, the existence of a commercial element, the scale of the activity and the proportion which the activity bears to other activities carried on by the same person but which are not regulated. The nature of the particular activity in question will also be relevant.

What ‘by way of business’ means can vary depending on the activity in question. For the new regulated cryptoasset activities, the Cryptoassets Regulations apply a narrower concept of what ‘by way of business’ means (see PERG 2.3.2G), such that a person will only be regarded as carrying on a regulated activity by way of business if they carry on the business of engaging in one or more such activities. In the FCA’s view, this requires the regulated activities to represent the carrying on of a business in their own right and is a deliberately narrower test than the business test that would otherwise apply under the Act, reflecting the nature of cryptoasset markets and the identity and status of most of its participants, many of whom may be retail investors.

The requirement that a person carries on ‘the business of engaging in’ a regulated activity is not unique to regulated cryptoasset activities. Similar formulations already apply to various existing regulated activities, notably to any regulated activities carried on in relation to securities, contractually based investments or property of any kind, among others. The effect of this narrower test is that the relevant regulated activity must itself form part of the person’s business, rather than merely occurring in the course of other activities carried on by that person, or merely because that person engages in cryptoasset markets.

In practical terms, the ‘business of engaging in’ formulation is intended to focus the perimeter on persons whose business model involves providing, performing, operating or otherwise being engaged in the relevant activity as an activity of their business (for example, as a service to paying customers), as opposed to persons who are merely using such services as a customer, or who participate in those cryptoasset activities on their own account as an occasional activity. As with the business element generally, the outcome will depend on the facts and on the substance of what the person does.

Whether a person carries on the business of engaging in a regulated cryptoasset activity is ultimately a matter of judgement having regard to all the circumstances. In assessing whether a person is carrying on the business of engaging in a regulated cryptoasset activity, relevant considerations are likely to include the same kinds of factors that are relevant to the ‘by way of business’ assessment generally, including the degree of continuity of the activity, whether it has a commercial element, the scale on which it is conducted, the extent to which the activity forms part of, or is incidental to, the person’s overall business, and the particular activity being carried on. The consequence of the narrower test is that these considerations must be applied to the question of whether the person’s business involves engaging in the relevant activity as part of its business model, rather than (for example) merely participating in the activity as an end-user.

Persons should therefore consider carefully the extent to which they may be carrying on the business of engaging in regulated cryptoasset activities, with reference to the specifics of their business model, to ensure they seek and obtain the correct permissions before carrying on any regulated activities.

The assessment must be undertaken separately in relation to each regulated cryptoasset activity. The fact that a person carries on one regulated cryptoasset activity by way of business does not necessarily mean that other activities undertaken by that person will satisfy the test.

Note that for the purposes of the Money Laundering Regulations, the meaning of ‘by way of business’ may not be the same as that introduced by the Cryptoassets Regulations. See PERG 18.12.11.

Question 2.2: Does merely using cryptoassets or participating in cryptoasset markets mean that I am carrying on a regulated cryptoasset activity by way of business?

No. The fact that a person buys, sells, holds, transfers, stakes or otherwise uses cryptoassets does not, of itself, mean that the person is carrying on a regulated cryptoasset activity by way of business. Whether a person is carrying on a regulated cryptoasset activity by way of business depends on the role that the person performs and the extent to which the relevant activity forms part of that person’s business.

The regulated cryptoasset activities are generally directed at persons whose business involves providing, performing, operating or arranging the relevant activity. For example, a person who periodically buys or sells qualifying cryptoassets on their own account as an investment would not ordinarily be expected to require authorisation solely because they enter into such transactions. Equally, a person who uses a service provided by another person does not, merely by using that service, also carry on the regulated activity performed by that service provider.

However, whether authorisation is required will always depend on the facts. Persons should consider the particular regulated cryptoasset activity in question, the nature and scale of their involvement, whether the activity forms part of their business, and whether any exclusion or exemption applies.

Question 3.1: How should I determine whether a regulated cryptoasset activity is carried on ‘in the UK’?

In considering whether a regulated cryptoasset activity is carried on in the UK, it is helpful to approach the analysis in 2 stages.

The first stage is to consider whether the activity would ordinarily be regarded as being carried on in the UK, applying the general territorial principles under the Act and the guidance in PERG 2.4.1G and PERG 2.4.2G.

The second stage is relevant where the activity would not ordinarily be regarded as being carried on in the UK. In that case, it is necessary to consider whether the activity is nevertheless treated as carried on in the UK by one of the deeming provisions in section 418 of the Act. In relation to certain regulated cryptoasset activities, the Cryptoassets Regulations amend section 418 so that activities involving UK consumers may be treated as carried on in the UK even where the person carrying on the activity is established overseas.

In many instances, it will be straightforward to identify that an activity is carried on in the UK, such as where all participants and all elements of the activity are in the UK. However, cryptoasset markets have the potential to operate in a less localised way than traditional markets, potentially challenging the application of these principles. Nevertheless, cross-border arrangements do not necessarily preclude a person from being considered to be carrying on an activity in the UK, because of the operation of the deeming provisions in section 418, which sets out scenarios in which activities are deemed to be carried on in the UK even if not all participants and/or not all elements of the activities are carried on in the UK. In other words, even where an activity would not ordinarily be regarded as carried on in the UK, section 418 operates to treat them as being in the UK.

The cryptoasset-specific provisions in section 418 do not replace the ordinary territorial analysis. Rather, they operate in addition to it. A person should therefore first consider whether the activity is carried on in the UK applying the ordinary territorial principles before considering whether any deeming provision in section 418 applies.

This section explains when a person is regarded as carrying on the new regulated cryptoasset activities ‘in the United Kingdom’ for the purposes of the general prohibition in section 19 (The general prohibition) of the Act. What ‘in the UK’ means in the context of the regulated activity of issuing a qualifying stablecoin is addressed separately in PERG 18.3.5.

The guidance in this section builds on the guidance in PERG 2.4 and the new cryptoasset activity-specific deeming provisions in section 418 of the Act, which set out the cryptoasset-specific territorial principles introduced by the Cryptoassets Regulations. The approach in the Cryptoassets Regulations serves to ensure that persons offering services to UK consumers are within scope of the perimeter, regardless of whether they are based in the UK or overseas. This expands the scope of what is considered ‘in the UK’ for certain activities (subject to certain exclusions). PERG 18.3.2 to PERG 18.3.5 explain how this operates for regulated cryptoasset activities.

Question 3.3: When is cryptoasset safeguarding considered to be carried on in the UK?

In the FCA’s view, the ‘place of supply’ of the safeguarding cryptoassets activity is assumed to be the location of the safeguarding operations. Because the concept of control is crucial to the way the safeguarding cryptoassets activity is specified, the relevant questions of fact will focus on where the requisite degree of control to bring about a transfer of the benefit of the cryptoasset is being, or could be, exercised. Therefore, if the mechanisms and protections around that control are situated in the UK, the activity is seen as being carried on in the UK. This is regardless of the location of the customer or of the cryptoasset.

Section 418(6E) of the Act sets out that overseas persons will be deemed to be safeguarding cryptoassets or arranging cryptoasset safeguarding in the UK where this is carried out on behalf of a UK consumer and they are not carrying on this activity at the direction of another person who is authorised to carry on those activities.

In the FCA’s view, this last condition contemplates a situation in which, for example, an authorised firm, in the course of safeguarding cryptoassets itself on behalf of a consumer, arranges for an overseas person to safeguard the qualifying cryptoassets, and that overseas person is required to comply with the authorised firm’s instructions. In that situation, the consumer is dealing with the authorised person, who would be expected to take regulatory responsibility for the arrangements with the overseas person.

But, otherwise (ie, where the condition referring to the direction of an authorised person is not met), the fact of safeguarding being carried out on behalf of a UK consumer will mean that the precise location of the mechanisms and protections around the control will be irrelevant to the question of whether safeguarding cryptoassets or arranging cryptoasset safeguarding is considered to be carried on in the UK.

The temporary settlement exclusion may be of relevance in respect of overseas persons which are temporarily safeguarding client cryptoassets to facilitate the settlement of a transaction (see PERG 18.6.6).

Question 3.4: When is arranging qualifying cryptoasset staking considered to be carried on in the UK?

Arrangements made by or for persons in the UK for arranging qualifying cryptoasset staking, and which occur in the UK, are seen as being carried on in the UK.

Section 418(6E) of the Act sets out when a person is deemed to be carrying on arranging qualifying cryptoasset staking in the UK where they would not otherwise be considered as such. Under these provisions, a person is deemed to be carrying on arranging qualifying cryptoasset staking in the UK, regardless of where they are physically located or legally registered, provided that this is for a consumer who is in the UK.

However, where a person outside the UK is operating at the direction of a person who is authorised to conduct arranging qualifying cryptoasset staking, the person outside the UK is not considered to be carrying out the regulated activity. In the FCA’s view, this contemplates a situation in which, for example, an authorised person, in the course of arranging qualifying cryptoasset staking on behalf of a consumer, arranges for an overseas person to stake the qualifying cryptoassets, and that overseas person is required to comply with the authorised person’s instructions. In that situation, the consumer is dealing with the authorised person, who would be expected to take regulatory responsibility for the arrangements with the overseas person.

Question 3.5: When is issuing a qualifying stablecoin considered to be carried on in the UK?

Issuing a qualifying stablecoin is considered to be carried on in the UK where the component elements of issuing the qualifying stablecoin – the offering, redemption, and maintaining value – are carried on from, or arranged to be carried on from, an establishment in the UK. An issuer is a person who carries out these activities, or arranges for another to carry these activities, from an establishment in the UK.

The effect of section 418(6B) of the Act is that a person who is not themselves acting from an establishment in the UK is deemed to be carrying out this regulated activity in the UK where all the elements of the issuing activity are being carried out in the UK on their behalf. This means that a person outside the UK who is arranging for the all the elements of issuing a qualifying stablecoin to be undertaken in the UK will themselves require authorisation under article 9M (Issuing qualifying stablecoin) of the Regulated Activities Order.

Under article 9M(4)(b), an overseas person could also be regarded as carrying out the regulated activity of issuing a qualifying stablecoin where they assume (by assignment, variation, or operation of law, or by any other similar mechanisms) an undertaking to redeem a qualifying stablecoin from a person who is carrying out the regulated activity of issuing of a qualifying stablecoin under article 9M. See PERG 18.5.6.

Where a person issues qualifying stablecoins but does not meet the conditions necessary to be issuing a qualifying stablecoin under article 9M, their activities may constitute other regulated activities. See PERG 18.5.1 to PERG 18.5.3.

Question 3.8: Does a particular structure (eg, branch versus subsidiary) impact whether an activity is in the UK?

No. Whether a person is carrying on a regulated activity in the UK by way of business is a question of fact, with reference to the specific features of the person’s business and activities. The scope of the activities that constitute regulated activities for which authorisation or exemption is required is set in legislation, although PERG provides guidance on this. A person’s particular business structure does not necessarily determine whether they need to be authorised or exempt in respect of the activities they carry on. See ‘Finalised Guidance: Approach to International Cryptoasset Firms (AICF)’.

However, a person’s organisational structure and the location of its offices or establishments may be relevant to that assessment. In particular, section 418(4) and (5) of the Act contain deeming provisions under which the location of a person’s registered office, head office or UK establishment may be relevant in determining whether that person is regarded as carrying on a regulated activity in the UK. See PERG 2.4.3G.

Question 3.9: How does the assessment of territoriality relate to the FCA’s authorisation requirements?

The question of whether a person is carrying on a regulated activity in the UK is separate from the FCA’s approach to assessing applications for Part 4A permission as an authorised person. Whether a regulated cryptoasset activity is carried on in the UK depends on the particular facts and circumstances of the activity in question, as well as the deeming provisions under section 418 of the Act. 

By contrast, the FCA’s approach to authorisation concerns whether a person satisfies, and will continue to satisfy, the threshold conditions, which determine the minimum standards that must be met for authorisation. The FCA has issued guidance about how it would assess authorisation applications and continuing supervision, including effective supervision, suitability, appropriate resources, and potential insolvency outcomes (notably for client assets) (see ‘Finalised Guidance: Approach to International Cryptoasset Firms (AICF)’). Readers considering seeking authorisation in connection with regulated cryptoasset activities may also wish to consider general COND guidance on interpreting the threshold conditions.

Question 4.1: What is a qualifying cryptoasset? (article 88F of the Regulated Activities Order)

A qualifying cryptoasset is a cryptoasset that meets both the definition of a cryptoasset in section 417 (Definitions) of the Act and the definition of qualifying cryptoasset in the Regulated Activities Order (as amended by the Cryptoassets Regulations). A qualifying cryptoasset is a specified investment. Section 417 of the Act defines a cryptoasset as any cryptographically secured digital representation of value or contractual rights that:

Question 4.2: What does ‘fungible’ mean? Are non-fungible tokens (NFTs) qualifying cryptoassets?

When a cryptoasset is fungible, it means that it is freely replaceable by another cryptoasset of a similar nature or kind. This means that a cryptoasset will generally be fungible where each unit of that cryptoasset is interchangeable with any other unit of the same cryptoasset, such that one unit can be substituted for another to satisfy an obligation without regard to any unique attributes of the particular unit. If a cryptoasset is not fungible, it will not meet the definition of a qualifying cryptoasset, irrespective of its other features. However, each cryptoasset token should be assessed in relation to its unique features on a case-by-case basis. Fungibility is a question of fact rather than of how a cryptoasset is labelled or marketed; therefore, the fact that a cryptoasset might be described as an NFT will not, on its own, necessarily determine whether it is a qualifying cryptoasset. 

A cryptoasset whose units are ordinarily treated by market participants as equivalent, freely replaceable and interchangeable will ordinarily be fungible. The existence of different token identifiers, metadata or other technical features will not, by itself, necessarily determine whether a cryptoasset is fungible. Where cryptoassets are issued as part of a collection or series, the assessment should consider whether market participants ordinarily regard individual cryptoassets as interchangeable and readily substitutable in practice. In contrast, a cryptoasset whose units are treated as unique because they carry unit-specific attributes that market participants treat as relevant – for example, collectible or unique artistic characteristics – are less likely to be considered fungible.

A cryptoasset that is not fungible will not be a qualifying cryptoasset.

Question 4.3: What does ‘transferable’ mean?

The definition of qualifying cryptoassets in article 88F (Qualifying cryptoassets) of the Regulated Activities Order requires that the cryptoasset be ‘transferable’. Article 88F(3) expressly provides that, for these purposes, ‘transferable’ can include circumstances where the cryptoasset confers transferable rights.

Transferability therefore refers to the capability of the cryptoasset (or rights it confers) to be transferred from one person or address to another, whether on-chain or off-chain and whether for consideration or gratuitously. This is irrespective of any contractual restrictions in respect of a particular cryptoasset that might have the effect of contractually restricting a holder from transferring the cryptoasset to a third party for a period of time or until certain conditions are met (eg, under a token lock-up provision that precludes the ability of certain token holders from selling, trading or transferring the tokens for a specified period).

One indicator that a cryptoasset is transferable may be that the cryptoasset is capable of being traded on cryptoasset markets, but the absence of this capability does not necessarily mean the cryptoasset is not transferable.

Transferability is not confined to the technical ability to move the cryptoasset token on a ledger. It can also be satisfied where the cryptoasset functions as a vehicle for rights that are capable of being assigned or otherwise transferred between persons or addresses (eg, where the relevant legal relationship permits a change of the rights-holder, even if reflected off-chain).

As such, where the cryptoasset represents or confers transferable rights, the cryptoasset would be regarded as transferable for the purposes of the definition in article 88F even if that specific cryptoasset in question cannot be transferred on-chain. Therefore, the fact that a cryptoasset arrangement gives effect to a transfer by cancelling or burning one token and minting or issuing another does not necessarily prevent the cryptoasset from being transferable, where the rights it confers are capable of being transferred to another person and that mechanism is how the transfer is effected.

A cryptoasset may be transferable even if transfers require the use of particular infrastructure or compliance processes, provided that the cryptoasset (or rights it confers) is capable of being transferred between persons or addresses in at least some circumstances. Accordingly, compliance-related requirements or controls – such as know-your-customer (KYC) processes, whitelisting arrangements, transfer approval mechanisms, or the ability to restrict or freeze transfers in specified circumstances – will not, of themselves, prevent a cryptoasset from being transferable.

A cryptoasset that is transferable may still fall outside the definition of a qualifying cryptoasset for other reasons. For example, a cryptoasset that is redeemable only with its issuer and that may only be used to obtain goods or services from the issuer, or within a limited network of service providers, may be excluded from the definition as explained at PERG 18.4.1, notwithstanding that it is transferable.

The definition of a qualifying cryptoasset under the Financial Promotion Order slightly differs in respect of the transferability requirement. For the purpose of the Financial Promotion Order, transferability also includes where a communication made in relation to the cryptoasset describes it as being transferable or conferring transferable rights.

A cryptoasset that is not transferable, such that neither the cryptoasset nor any right it confers is transferable, will not be a qualifying cryptoasset.

Question 4.4: What sorts of cryptoassets would be ‘solely a record’ for the purposes of article 88F(2)(c) of the Regulated Activities Order?

A cryptoasset will be excluded by article 88F(2)(c) of the Regulated Activities Order where, notwithstanding that it may be cryptographically secured and electronically transferable or storable, it is solely a record of value or contractual rights (including rights in another cryptoasset) and does not function in practice as an asset in its own right.

In assessing whether a cryptoasset is solely a record, it is helpful to take a functional approach to assessing the nature of the cryptoasset. This includes considering the role performed by the cryptoasset in relation to any value or contractual rights associated with it. Relevant considerations that would suggest it is not solely a record may include whether, in practice, the controller of the cryptoasset is able to exercise the associated value or contractual rights, and whether transferring the cryptoasset is the mechanism by which that value is, or those contractual rights are, transferred in practice (as opposed to the cryptoasset being merely evidential of rights that are transferred or constituted by other means). The fact that a cryptoasset is used to identify, evidence or record entitlements to value or contractual rights as part of a legally authoritative record or register does not, by itself, mean that the cryptoasset is more than solely a record.

The definition of a cryptoasset under the Act encompasses cryptoassets that embody value or contractual rights directly, as well as cryptoassets that represent value or contractual rights in another asset. In either case, the relevant question for the purposes of article 88F(2)(c) is whether the cryptoasset is solely a record of value or contractual rights.

A cryptoasset does not become solely a record merely because it represents, evidences or is associated with value or contractual rights relating to another asset rather than embodying value or contractual rights directly. Where the ability to exercise or transfer value or contractual rights relating to the underlying asset attaches, in practice, to the controller of the cryptoasset, rather than by reference to a separate register, record or other mechanism, the cryptoasset is unlikely to be solely a record.

By contrast, a cryptoasset that does not function as an asset in its own right may be solely a record where it simply serves to identify value or contractual rights in another asset, and any transfer of the relevant value or contractual rights in the underlying asset is effected by reference to something other than the transfer of control of the cryptoasset itself.

An example of a cryptoasset that is likely to be solely a record is a cryptographically secured or encrypted spreadsheet, database or ledger (or an entry within one). Such records do not function as an asset in their own right, even where they serve as legally authoritative evidence in respect of entitlements to an underlying asset. Although these cryptoassets are cryptographically secured, electronically transferable or storable, and possibly fungible, they are only a record of value or rights that exist independently elsewhere. The controller of the cryptoasset is unable to exercise that value or those rights, nor effect any transfer of them.

It does not necessarily matter whether the value or contractual rights associated with a cryptoasset arise directly through the cryptoasset itself or by reference to another asset. The relevant issue is whether the cryptoasset functions solely as a record of that value or those contractual rights.

So-called liquid staking tokens and some wrapped tokens, which are issued in exchange for a qualifying cryptoasset that is staked or otherwise held by another with a corresponding ability to exchange that qualifying cryptoasset for the staked qualifying cryptoasset in the future, could be described, at a high level, as cryptoassets that record or represent rights in another cryptoasset. Despite this, the controller of such a token may be entitled to redeem it for the corresponding underlying cryptoasset, and may be able to exercise or transfer that entitlement by virtue of controlling the token. Such tokens may therefore function as a liquid investment in their own right, unlike encrypted spreadsheets and databases. These tokens are therefore unlikely to constitute mere records such that they are excluded from the definition of a qualifying cryptoasset.

Question 4.5: What is a qualifying stablecoin? (article 88G of the Regulated Activities Order)

A qualifying stablecoin (article 88G (Qualifying stablecoin) of the Regulated Activities Order) is a qualifying cryptoasset that seeks or purports to maintain a stable value by reference to a single fiat currency and involves the holding of fiat currency and/or other assets (often referred to as ‘backing assets’) for the purpose of maintaining that stable value.

A qualifying stablecoin is a subset of qualifying cryptoasset. It does not need to be issued in the UK or by a person authorised to issue a qualifying stablecoin in the UK to constitute a qualifying stablecoin. 

In the FCA’s view, the requirement to hold backing assets to maintain a stable value means that qualifying cryptoassets which maintain their value partly or wholly through algorithmic methods or other means rather than underlying backing assets do not constitute qualifying stablecoins.

A wrapped token relating to qualifying stablecoins will not itself automatically be a qualifying stablecoin. It will only be a qualifying stablecoin if it meets the criteria set out above but, in the FCA’s view, that is unlikely to be the case because of article 88G(3) of the Regulated Activities Order. PERG 18.4.4 and PERG 18.4.13 contain some further guidance on the status of wrapped tokens. As set out in PERG 18.8.7, a person providing or facilitating wrapping services may fall within scope of certain regulated activities, such as dealing or arranging.

Question 4.6: What is a specified investment cryptoasset?

A specified investment cryptoasset is defined in article 3 (Interpretation) of the Regulated Activities Order. It is a cryptoasset that:

Question 4.7: Which elements of the qualifying cryptoasset definition must a specified investment cryptoasset satisfy?

The conditions that a cryptoasset must satisfy in order to be a specified investment cryptoasset are set out in full at PERG 18.4.6(1) to (3). The discussion below focuses on those conditions that correspond to elements of the qualifying cryptoasset definition.

In determining whether a cryptoasset is a specified investment cryptoasset, the exclusions from the definition of a qualifying cryptoasset in article 88F(4)(a) to (c) of the Regulated Activities Order (described in PERG 18.4.1) are disregarded. As such, cryptoassets that fall within those exclusions may still constitute specified investment cryptoassets.

The remaining elements of the qualifying cryptoasset definition continue to be relevant. In particular, a specified investment cryptoasset must be fungible (see PERG 18.4.2) and transferable (see PERG 18.4.3), and must not constitute solely a record of value or contractual rights (including rights in another cryptoasset) (see PERG 18.4.4). A cryptoasset will not be a specified investment cryptoasset if it fails to satisfy any of those conditions.

In addition, the condition described at PERG 18.4.6(2) means that a cryptoasset will not be a specified investment cryptoasset if it meets both of the following conditions:

Question 4.8: Do fractions or sub-units of cryptoassets constitute qualifying cryptoassets in their own right?

Yes. Whether something is a qualifying cryptoasset depends on whether it satisfies the statutory definition. The FCA does not generally consider that a cryptoasset must consist of a whole unit of a particular asset in order to be a qualifying cryptoasset.

Accordingly, where a cryptoasset is capable of being divided into smaller units or fractions, those units or fractions will generally themselves constitute qualifying cryptoassets, provided that the relevant elements of the definition are satisfied. For example, where bitcoin constitutes a qualifying cryptoasset, a satoshi (being a fraction of a bitcoin) would also generally be regarded as a qualifying cryptoasset. The fact that it represents only a small quantity of the relevant cryptoasset does not, of itself, affect that conclusion.

Question 4.10: Are specified investment cryptoassets and relevant specified investment cryptoasset different?

Yes. A relevant specified investment cryptoasset is a particular type of specified investment cryptoasset. All relevant specified investment cryptoassets are specified investment cryptoassets, but not all specified investment cryptoassets are relevant specified investment cryptoassets.

A specified investment cryptoasset is any cryptoasset which falls within the definition in article 3 of the Regulated Activities Order. Broadly speaking, these are cryptoassets that fall within one of the existing categories of specified investment in Part III of the Regulated Activities Order.

A relevant specified investment cryptoasset is a more limited category used for certain purposes in the Cryptoassets Regulations. In particular, article 9N (Safeguarding of qualifying cryptoassets and relevant specified investment cryptoassets) of the Regulated Activities Order applies the safeguarding cryptoassets and arranging cryptoasset safeguarding activities to qualifying cryptoassets and to those specified investment cryptoassets which are securities or contractually based investments.

Accordingly, whether a specified investment cryptoasset is also a relevant specified investment cryptoasset depends on the category of specified investment to which it relates. The distinction is significant because certain provisions in the Cryptoassets Regulations only apply in relation to qualifying cryptoassets and relevant specified investment cryptoassets.

For example, where a cryptoasset constitutes a relevant specified investment cryptoasset, activities involving the safeguarding of that cryptoasset may fall within the scope of the regulated activities of safeguarding cryptoassets or arranging cryptoasset safeguarding. By contrast, a specified investment cryptoasset that is not a relevant specified investment cryptoasset would not be brought within those specific custody-related cryptoasset activities.

The appropriate classification of a cryptoasset will depend on the nature of the specified investment represented by, constituted by or otherwise associated with the cryptoasset. Persons should therefore first consider whether the cryptoasset is a specified investment cryptoasset and, if it is, whether it falls within the narrower category of a relevant specified investment cryptoasset.

Question 4.11: Why does the classification of a cryptoasset matter?

The classification of a cryptoasset is an important step in determining which legislative provisions may apply, whether authorisation may be required and, if so, which permissions are needed. Different categories of cryptoasset can engage different regulated activities, exclusions and other provisions of the regulatory perimeter. It is therefore important to determine whether a cryptoasset is a qualifying cryptoasset, a qualifying stablecoin, a specified investment cryptoasset or a relevant specified investment cryptoasset (or another form of specified investment) before considering whether a person may require authorisation.

In broad terms:

Question 4.12: What about cryptoassets that have multiple functions or whose characteristics evolve over time?

There is no separate category of ‘hybrid’ or ‘evolving’ cryptoassets. The regulatory classification of a cryptoasset described in this way will depend on the characteristics it exhibits at the time the relevant activity is carried on.

A cryptoasset should be assessed against the definitions of a qualifying cryptoasset and a specified investment cryptoasset by reference to the characteristics, rights and arrangements it exhibits at the time that the relevant activity is carried on. Where a cryptoasset has multiple features, or its functionality, rights or other characteristics change over time, those changes should be considered to assess whether they affect its regulatory classification.

Question 4.13: How should wrapped tokens be classified?

A wrapped token is a cryptoasset that is created or issued by reference to another asset (the underlying asset). The term ‘wrapped token’ describes the manner in which the cryptoasset is structured and is not, of itself, a regulatory classification. Whether a wrapped token is a qualifying cryptoasset or a specified investment cryptoasset depends on whether it satisfies the conditions of the relevant statutory definition. A wrapped token should therefore be assessed in its own right.

The fact that the underlying asset is a qualifying cryptoasset or a specified investment cryptoasset does not, of itself, determine the regulatory status of the wrapped token. While a wrapped token may have the same regulatory classification as the underlying asset, this will not necessarily always be the case.

Question 5.1: What does it mean to ‘issue’ a stablecoin under article 9M of the Regulated Activities Order?

Article 9M of the Regulated Activities Order provides that ‘issuing a qualifying stablecoin’ is a specified kind of activity. Article 9M identifies several elements that together constitute the regulated activity. The person carrying out the following activities must be the person who created the qualifying stablecoin or on whose behalf it was created (or must be a member of a group for whom it was created):

Question 5.2: Does carrying on only one of the limbs in article 9M of the Regulated Activities Order amount to ‘issuing a qualifying stablecoin’?

Article 9M of the Regulated Activities Order should be considered as a whole; carrying on only one element of article 9M does not amount to issuing a qualifying stablecoin. For example, a person who only performs the redemption activity will not be issuing a qualifying stablecoin. However, they could be issuing a qualifying stablecoin where they both carry out one element of the 9M activity and arrange for another person or other persons to carry out the remaining elements.

Question 5.3: How does redemption form part of the issuance activity under article 9M of the Regulated Activities Order?

Redemption is identified in article 9M of the Regulated Activities Order as an element of issuing a qualifying stablecoin (in article 9M(2)(c)(i)). Redemption on its own, or arranging for another to redeem, does not constitute issuing a qualifying stablecoin. As an exception to this, article 9M(4)(b) provides for a person who assumes an undertaking to redeem to be deemed to have created the stablecoin and be carrying on the offering and backing asset limbs of issuing a qualifying stablecoin (see PERG 18.5.6).

Question 5.4: Does providing only technology, infrastructure or software in relation to issuing a qualifying stablecoin amount to the regulated activity?

A person whose role is limited to providing technology, software, infrastructure, connectivity or minting capability used by another person in that person’s issuance arrangements, without undertaking activities described in article 9M(2)(a) or (c)(i) and (ii) of the Regulated Activities Order, would not normally be carrying on the regulated activity of issuing a qualifying stablecoin. This would generally include a person acting in a white-labelling arrangement whose role is limited to technical provision and does not involve arranging for the offer, redemption or holding of backing assets by another person. Whether a person is the issuer depends on the substance of the arrangements and whether that person satisfies article 9M as a whole. This is fact-dependent, and a person should also consider whether they are carrying on any other regulated activity.

Question 5.5: What authorisation is needed by a person to carry out one or more limbs of article 9M of the Regulated Activities Order on behalf of an issuer?

Article 9M of the Regulated Activities Order contemplates a single issuer for the regulated activity. A person that carries out outsourced functions in relation to a stablecoin is not necessarily issuing a qualifying stablecoin. Where all of the relevant offer, redemption and reserve-holding limbs are carried on by person B under arrangements made by A, article 9M(4)(c) provides that only A, and not B, is treated as carrying on the issuing activity. If only some, but not all, of those activities are carried on by another person under arrangements made by A, persons should consider the arrangements as a whole to determine who is carrying on the issuing activity. Whether a third party carrying out functions for a stablecoin issuer requires authorisation for other activities would depend on exactly what it is doing (for example, a person providing services in relation to the backing assets may be carrying out regulated activity).

Question 5.6: If a stablecoin issuer sells its business book to an overseas firm, could the overseas firm need authorisation under article 9M of the Regulated Activities Order to continue issuance?

Yes, the purchaser of a UK-issued qualifying stablecoin business could require authorisation under article 9M of the Regulated Activities Order due to article 9M(4)(b). The effect of article 9M(4)(b) is that a purchaser who assumes an undertaking to redeem the qualifying stablecoin is considered to be carrying on the offering and backing asset limbs of issuing a qualifying stablecoin and to have created the stablecoin.

Question 6.1: To what extent does the carrying on of the activity of safeguarding cryptoassets depend on who owns the cryptoasset?

PERG 2.7.10G explains that, for the regulated activity of safeguarding and administering investments, the safeguarded property must belong beneficially to another person.

This requirement does not apply to the regulated activity of safeguarding cryptoassets. Safeguarding cryptoassets may be carried on regardless of whether the cryptoasset is owned by the customer or the firm, provided the activity is carried out on behalf of another person and the firm has the requisite degree of control over the cryptoasset.

As a result, determining whether a person is carrying on the activity of safeguarding cryptoassets involves less emphasis on establishing ownership. This is particularly relevant where anonymous transaction ledgers are not designed to identify ownership of a cryptoasset.

Where a firm acting on behalf of another has sufficient control and the customer has a right against the firm for the return of the cryptoasset (but does not own it themselves), the arrangement can still be within scope of safeguarding cryptoassets. (This is not the case where the right arises from certain types of transactions which do not involve a consumer – see PERG 18.6.4.)

In the FCA’s view, because the definition of qualifying cryptoasset includes the quality of being fungible, and this is also therefore a component of the definition of specified investment cryptoasset, it will be immaterial if the right for the return is for the particular cryptoasset that was given by the customer, or for a fungible substitute. However, the concept of a right for return does not include a debt owed by the firm to the customer where the customer had not placed a cryptoasset in the firm’s control in the first place.

Question 6.2: How does the concept of ‘control’ relate to the regulated activity of safeguarding cryptoassets?

A firm will only be safeguarding cryptoassets if it has the requisite degree of control, which is the ability (through any means) to bring about the transfer of the benefit of the cryptoasset to another person, including to the firm itself.

This requisite degree of control may arise in various ways and the words ‘through any means’ signify a broad scope. Article 9N(4) of the Regulated Activities Order highlights 2 common examples: holding or storing the means of access to the cryptoasset (often the private cryptographic key), and operating an arrangement in which others are appointed to hold or store the means of access or any part of it. The latter includes arrangements where the firm engages other persons to hold ‘shards’ (or sections) of a private cryptographic key.

The requisite degree of control will not be satisfied if a person merely has the ability to prevent a transfer of the benefit of the cryptoasset to another person (sometimes referred to as ‘negative control’). This may be the case if the firm merely holds a single ‘shard’ of a private cryptographic key, which is below a threshold that would be needed to bring about the transfer of the benefit of the cryptoasset to another person; although if such a firm has the ability to meet the relevant threshold through other additional means – for example, by requiring other parties to carry out acts in relation to ‘shards’ which they control – it will have the requisite degree of control. The relevant threshold in that situation will be a case-specific matter.

As technology evolves, new methods of obtaining such control will likely emerge. It seems unlikely that the facts of whether a service has an ‘online’ element, or is entirely ‘offline’, will, purely of itself, be conclusive to the question of whether there is the requisite degree of control. However, the central question will remain whether the firm is, or could put itself, in a position to initiate a transfer that could prejudice a person with a claim to the cryptoasset. Addressing this potential harm is the core purpose of regulating the activity.

Readers considering the control test in the context of services which involve more than one party may find it helpful to consider the table of examples on page 65 of ‘Crypto Regime: Regulated Cryptoasset Activities’ (PS26/11).

Persons who consider themselves to merely provide technical, infrastructure, connectivity or security services should note that there is no exclusion from safeguarding cryptoassets which has been expressly made for those types of services. Therefore, such persons are likely to need to consider whether, in the course of providing such services, they have the requisite degree of control. The holding out exclusion at article 9R(2) (Article 9N exclusion: other exclusions) of the Regulated Activities Order may be available to them where the conditions for that exclusion are met (see PERG 18.6.9).

Question 6.3: What about ‘self-custody’ arrangements?

Two of the key components of carrying on the regulated activity of safeguarding cryptoassets are that the firm’s safeguarding is on behalf of another person and that the firm has the requisite degree of control. This means that where a firm supplies a customer with a solution for the customer to keep their own cryptoasset secure by exercising control themselves, and the firm itself has no means to bring about the transfer of the benefit of the cryptoasset to another person, the firm will not be carrying on the activity of safeguarding cryptoassets.

But in cases where the firm promises (eg, under a contract) not to exercise control but does actually have the requisite control (eg, because it can override a customer’s authority through its own systems, including by devising a way to do that), the control element of the activity is likely to be met because of the broad scope signified by the words ‘through any means’.

Therefore, in order for a firm that purports to provide customers with a ‘self-custody’ solution to be confident that it is not carrying on the regulated activity of safeguarding cryptoassets, it would need to be able to demonstrate that it genuinely does not have ‘any means’ to itself bring about the transfer of the benefit of the cryptoasset. This is likely to involve examining how the solution is engineered in technical detail.

Question 6.4: What about title transfer collateral arrangements and transactions in which the customer is contracted to buy back the asset from the firm?

Where a firm acting on behalf of another has the requisite degree of control over a cryptoasset, and that other person – who is not a ‘consumer’ (meaning an individual who is acting for a purpose other than for any trade, business or profession carried on by that individual) – has a right against the firm for the return of the cryptoasset, the firm will not be safeguarding cryptoassets if the other person’s right arises in either one of the following ways:

Question 6.5: Are the activities of group companies excluded?

The group activity exclusion at article 9O (Article 9N exclusion: group activity) of the Regulated Activities Order excludes any safeguarding conducted for a customer under arrangements operated by another group entity that is authorised to safeguard cryptoassets and has accepted responsibility towards that customer for meeting the safeguarding requirements. For example, a bare nominee company owned by an authorised cryptoasset safeguarding firm could benefit from this exclusion.

Question 6.6: What if the safeguarding is merely temporary and only to facilitate the settlement of a transaction?

The exclusion for temporary settlement arrangements at article 9Q (Article 9N exclusion: temporary settlement arrangements) of the Regulated Activities Order concerns arrangements whereby a qualifying cryptoasset or a relevant specified investment cryptoasset is held temporarily to facilitate the settlement of a transaction. Any such arrangements are removed from the scope of safeguarding cryptoassets or arranging cryptoasset safeguarding.

It does not, however, exclude such arrangements from any other activities, such as dealing in qualifying cryptoassets as principal or operating a qualifying CATP, which may also be relevant for the settlement of transactions. But, depending on whether the conditions are met, it may be relied on by persons carrying on those other activities who might otherwise be safeguarding cryptoassets or arranging cryptoasset safeguarding.

Although not defined, ‘settlement’ is likely to cover actions required for the parties to fulfil their obligations under a transaction, such as delivering cryptoassets to a designated party or wallet. ‘Facilitate’ is intended to link the safeguarding cryptoassets activity or the arranging cryptoasset safeguarding activity directly to the settlement process.

‘Temporarily’ is also undefined but is likely to mean that the safeguarding lasts only as long as necessary to facilitate settlement. In practice, the FCA considers that this is unlikely to require longer than 24 hours from the point at which the requisite degree of control exists.

The term ‘transaction’ is similarly undefined, though the exclusion is aimed at transactions involving one or more cryptoassets as part of their settlement obligations. This may include, for example, cryptoassets being transferred as collateral security for a loan, as well as cryptoassets being exchanged for other cryptoassets or for money. The way in which the transaction to be settled is brought about is immaterial (for example, it may have been executed on a QCATP or entered into ‘over the counter’ between investors). 

Question 6.7: What about having a power of attorney or investment management mandate over another person’s cryptoasset?

The exclusion at article 9R(1) of the Regulated Activities Order applies where a person who would otherwise have the requisite degree of control is acting solely as an agent, appointed to give instructions on the principal’s behalf to a person who has undertaken to safeguard the cryptoasset for that principal. This exclusion may, for example, apply to an investment manager appointed under a power of attorney (but see PERG 18.8.9 on the scope of managing investments in relation to qualifying cryptoassets and relevant specified investment cryptoassets). The effect of the exclusion is that, although such a person would otherwise have the requisite ‘control’ by having the means to bring about a transfer, that control would be excluded from safeguarding, provided the conditions of the exclusion are met.

Question 6.8: Is it a necessary element of safeguarding cryptoassets to be ‘holding out’ as providing that service?

No, in the sense that there is no exclusion for safeguarding cryptoassets which is available where there simply is an absence of holding out. But see PERG 18.6.9 regarding the exclusion at article 9R(2) of the Regulated Activities Order.

Question 6.9: What does the holding out exclusion at article 9R(2) of the Regulated Activities Order achieve?

This exclusion applies where a person does not hold themselves out as engaging in the business of providing a service that is in relation to qualifying cryptoassets or relevant specified investment cryptoassets.

For example, a safety deposit box provider or a generic data storage provider may, in the ordinary course of business, have the requisite degree of control to be safeguarding cryptoassets on behalf of a customer. In those scenarios, the customer may place a device which contains a private cryptographic key into the safety deposit box or may upload data consisting of a private cryptographic key onto the provider’s cloud storage facility. If the safety deposit box provider or data storage provider can access, and is in a position to use, the relevant device or data, they would have the requisite degree of control. However, if they do not hold themselves out as engaging in the business of providing a service in relation to cryptoassets (rather, they held themselves out as engaging in the business of providing generic safe storage for physical items or data), they would be able to rely on this exclusion.

Question 6.10: Is arranging cryptoasset safeguarding a regulated activity?

Yes. Arranging cryptoasset safeguarding is specified at article 9N(1)(b) of the Regulated Activities Order.

Arranging cryptoasset safeguarding is carried on by a person (the arranger) who arranges for another person to carry on safeguarding cryptoassets. It is possible for a firm to carry on both the activities of safeguarding cryptoassets and arranging cryptoasset safeguarding in relation to the same cryptoasset. For example, this can occur where, in the course of safeguarding cryptoassets on behalf of a customer, a firm appoints a third party to carry on day-to-day safeguarding. If the third party has the requisite degree of control, by making the appointment, the firm will be arranging cryptoasset safeguarding; but if the arrangement is structured so that the firm also retains the requisite degree of control (see article 9N(4)(b) of the Regulated Activities Order), the firm will also be safeguarding cryptoassets. Such a situation can also arise where a firm appoints another person to securely store ‘shards’ of a private cryptographic key which the firm can ‘call back’ on demand, and where the other person has the requisite degree of control by virtue of the number of ‘shards’ that they are storing.

It is also possible for a firm to carry on arranging cryptoasset safeguarding without also carrying on safeguarding cryptoassets. This can occur where the firm merely arranges for a third party to carry on safeguarding cryptoassets for a customer but the firm making that arrangement does not have the requisite degree of control itself. The customer would then have received an arranging cryptoasset safeguarding service from the firm but would rely entirely on the third party for the safeguarding cryptoassets service.

Question 6.11: What about introducing a person to a firm which is authorised to carry on safeguarding cryptoassets?

Mere introductions are excluded from the regulated activity of arranging cryptoasset safeguarding under article 9P (Article 9N exclusion: introductions) of the Regulated Activities Order, provided the introducer and the authorised safeguarding firm are not in the same group and the introducer is not remunerated by that firm.

Question 6.12: Can firms acting as depositaries of UK UCITS or AIFs carry on the regulated cryptoasset activities of safeguarding cryptoassets or arranging cryptoasset safeguarding?

No. The exclusion at article 42A (Depositaries of UK UCITS and AIFs) of the Regulated Activities Order covers the carrying on of these regulated activities in the same way as it does for the regulated activity of safeguarding and administering investments.

Question 7.1: What is a qualifying cryptoasset trading platform (QCATP)?

Question 7.2: We operate a cryptoasset trading platform with multiple buyers and sellers and we offer an execution facility on the platform and a crypto wallet for our users. What permissions are we likely to require?

The activity of operating a qualifying CATP does not extend to the provision of safeguarding services before or after a transaction has been entered into between a buyer and seller on that platform. As such, you require an operating a qualifying CATP permission and a safeguarding cryptoassets permission (and one for agreeing to carry on these regulated activities).

You will not require permission for arranging deals in qualifying cryptoassets to the extent that the only arranging you undertake with users of the platform all forms part of the activity of operating a qualifying CATP. This is the effect of article 9Z5(2) (Article 9Y: other exclusions) of the Regulated Activities Order.

Where you engage in matched principal trading for the purpose of executing client orders on a QCATP you operate, you will also require permission to deal in qualifying cryptoassets as principal to carry on such trading. Accordingly, a firm carrying on these separate activities will require permission for both operating a qualifying CATP and dealing in qualifying cryptoassets as principal. When you undertake matched principal dealing, the required permission should comprise a limitation limiting the latter to matched principal trading. ‘Matched principal trading’, for these purposes, means a transaction where the facilitator interposes itself between the buyer and the seller to the transaction in such a way that it is never itself exposed to market risk throughout the execution of the transaction, with both sides executed simultaneously, and where the transaction is concluded at a price where the facilitator makes no profit or loss, other than a previously disclosed commission, fee or charge for the transaction.

Question 7.3: We operate a cryptoasset trading platform offering an execution facility on the platform. We operate a float model for our UK users, where cryptoassets are moved from the client wallet to a global settlement wallet to settle transactions off-chain with an internal ledger. What permissions are we likely to require?

You require permission to operate a qualifying CATP and safeguard cryptoassets (and one for agreeing to carry on these regulated activities). For the FCA’s location policy regarding authorisation of an operator of a QCATP, including one which offers access to a global liquidity pool, see ‘Finalised Guidance: Approach to International Cryptoasset Firms (AICF)’.

Where your safeguarding activities are restricted to the activities above, you may wish to apply for a requirement on your permission which reflects your business model – for example, if you wish to take advantage of the exception from acting as a trustee for QCATPs in the FCA’s cryptoasset safeguarding rules.

Question 7.4: We operate a cryptoasset trading platform from overseas offering an execution facility on the platform to UK users but only when these are authorised persons. Do we require FCA authorisation to offer this service and do overseas users require FCA authorisation to use our platform?

No. If your platform is not made available for use by UK consumers – that is, individuals in the UK acting for a purpose other than for any trade, business or profession carried on by the individual – you will not be carrying on regulated activities in the UK. This is the effect of section 418 of the Act. Accordingly, where an authorised person trades on your platform on the basis of its Part 4A permission to deal in qualifying cryptoassets as principal, you will not be deemed to be carrying on the activity of operating a qualifying CATP in the UK. Conversely, if it trades on your platform on behalf of consumers, on the basis of its Part 4A permission to deal in qualifying cryptoassets as agent, you will be carrying on the activity of operating a qualifying CATP in the UK and require authorisation to do so.

Your overseas members will not require authorisation in relation to their use of your platform.

Question 7.5: What about interfaces connecting users to automated protocols that enable the exchange of qualifying cryptoassets? Do such interfaces require authorisation?

Whether or not an interface is in scope of the regulatory perimeter will depend on whether a regulated activity is carried on by way of business in the UK by an identifiable person. This will depend on the facts and circumstances of the case, and needs to be assessed on a case-by-case basis. Persons who provide arrangements which allow for trading in qualifying cryptoassets should consider the guidance at PERG 18.8.4 in relation to arranging deals in qualifying cryptoassets. Persons who provide arrangements in relation to arranging qualifying cryptoasset staking should see the guidance at PERG 18.10.1.

Question 7.6: I am involved in post-transaction settlement of cryptoasset trades. What permissions do I need?

As set out in PERG 18.6.6, ‘settlement’ is likely to cover actions required for the parties to fulfil their obligations under a transaction. This may involve a number of regulated cryptoasset activities, depending on the business model and subject to any exclusions. Persons who are involved in settlement of transactions of qualifying cryptoasset trades should consider the guidance at PERG 18.6 and PERG 18.8 in relation to safeguarding cryptoassets, arranging cryptoasset safeguarding, dealing in qualifying cryptoassets (as principal or agent) and, in particular, arranging deals in qualifying cryptoassets.

Question 8.1: When do dealing and arranging activities involving qualifying cryptoassets require authorisation?

This section sets out perimeter considerations in relation to the regulated activities of dealing in qualifying cryptoassets (as principal or agent) and arranging deals in qualifying cryptoassets. This relates to persons acting on behalf of clients as well as persons dealing on own account.

As set out in the guidance in this section, dealing and arranging deals is broadly prescribed in legislation. Whether a person who is dealing or arranging requires authorisation is contingent on the factors set out in PERG 2 and PERG 18.1.11. For example, a person may be dealing in qualifying cryptoassets (as principal or agent) when buying and selling qualifying cryptoassets on a QCATP. If they do so in a capacity which does not meet the by way of business test, such persons would not require authorisation. It is therefore important for persons to consider all factors in determining whether they require authorisation.

Question 8.2: What are the dealing and arranging activities for qualifying cryptoassets?

The new cryptoasset activities of dealing in qualifying cryptoassets as principal, dealing in qualifying cryptoassets as agent and arranging deals in qualifying cryptoassets mirror the existing regulated activities of dealing in investments as principal (article 14 of the Regulated Activities Order), dealing in investments as agent (article 21 of the Regulated Activities Order), arranging (bringing about) deals in investments (article 25(1) (Arranging deals in investments) of the Regulated Activities Order) and making arrangements with a view to transactions in investments (article 25(2)). As such, the new regulated cryptoasset activities are expected to operate similarly to articles 14, 21 and 25, albeit the effect of related exclusions, as discussed in PERG 18.8.3 and PERG 18.8.4, differs. Perimeter guidance on the article 14, 21 and 25 activities can be found in PERG 2.7. 

Question 8.3: What is dealing in qualifying cryptoassets (as principal or agent)?

Both the activities of dealing in qualifying cryptoassets as principal and dealing in qualifying cryptoassets as agent (articles 9T (Dealing in qualifying cryptoassets as principal) and 9W (Dealing in qualifying cryptoassets as agent) of the Regulated Activities Order) are defined in terms of ‘buying, selling, subscribing for or underwriting’ qualifying cryptoassets. 

As set out in PERG 2.7.6AG, to deal with the possible range of circumstances, ‘buying’ is defined in the Regulated Activities Order to include acquiring for valuable consideration. ‘Selling’ is defined to include disposing for valuable consideration and ‘disposing’ is itself given a specified meaning that covers a range of possible transactions. Buying and selling qualifying cryptoassets therefore captures a broad range of transactions and business models involving qualifying cryptoassets. This is regardless of how such transactions may be marketed or described. For example, a person may be engaged in the activity of dealing in qualifying cryptoassets (as principal or agent) when dealing on own account, acting as a single dealer platform, engaged in matched principal trading or engaged in qualifying cryptoasset lending or borrowing. See PERG 18.7.2 and PERG 18.9.1. 

The Regulated Activities Order is not prescriptive in setting out what the qualifying cryptoasset is exchanged for. This, however, is subject to the goods and services exclusion described in PERG 18.11.4 and PERG 18.11.5.

The scope of dealing in qualifying cryptoassets does not extend to specified investment cryptoassets. Nor does it extend to specified investments or financial instruments which may be linked to qualifying cryptoassets such as qualifying cryptoasset derivatives or cryptoasset exchange traded notes. Buying and selling activities involving such products fall within the scope of dealing in investments as principal or dealing in investments as agent.

Exclusions to the dealing activities are discussed in PERG 18.8.5, and PERG 18.8.11 to PERG 18.8.19.

Question 8.4: What is arranging deals in qualifying cryptoassets?

As with ‘arranging deals in investments’ (article 25 of the Regulated Activities Order), arranging deals in qualifying cryptoassets includes 2 distinct regulated activities. Article 9Y (Arranging deals in qualifying cryptoassets) of the Regulated Activities Order is divided into ‘arranging (bringing about) deals in qualifying cryptoassets’ and ‘making arrangements with a view to transactions in qualifying cryptoassets’. As set out in PERG 2.7.7BG, the former is aimed at arrangements that would have the direct effect that a particular transaction is concluded (that is, arrangements that bring it about). The latter is concerned with arrangements of an ongoing nature the purpose of which is to facilitate the entering into of transactions by other parties.

Examples of activities that may amount to arranging (bringing about) deals in qualifying cryptoassets under article 9Y(1) include receiving and transmitting a client’s order or instruction in relation to a qualifying cryptoasset to another person for execution. This regulated activity may also include bringing together 2 or more investors in a way that facilitates a transaction in qualifying cryptoassets. Readers may find it useful to be aware that, in the context of financial instruments, the reception and transmission of orders will typically amount to arranging (bringing about) deals in investments (see PERG 13.3 Q13 and PERG 13 Annex 2). The FCA considers that the inclusion of analogous activities within article 9Y(1) is consistent with that approach.

The ability to influence, direct or exercise discretion over whether a transaction in a qualifying cryptoasset is entered into by another person is not a necessary element of arranging deals in qualifying cryptoassets; nor is having control over the qualifying cryptoassets. A person with authority to enter into transactions in qualifying cryptoassets on behalf of another person should consider whether they are dealing in qualifying cryptoassets as agent (see PERG 18.8.3); whereas a person who exercises control over qualifying cryptoassets should consider whether they are safeguarding cryptoassets (see PERG 18.6).

Making arrangements with a view to transactions in qualifying cryptoassets has a potentially broad scope as the arrangements do not need to bring about a particular transaction (see PERG 18.8.20). It can capture arrangements such as those which:

Question 8.7: Does a person providing or arranging wrapping or bridging services need dealing/arranging permission?

Wrapping services and bridging services can be structured in a number of different ways and are not, in themselves, distinct regulated activities. Depending on how a particular service is structured and operated, carrying on wrapping or bridging activities may involve carrying on one or more regulated cryptoasset activities.

Wrapping services may involve the creation, issuance, redemption or exchange of a wrapped token relating to an underlying cryptoasset. Bridging services may involve enabling a cryptoasset, or the value represented by a cryptoasset, to be transferred, represented or used across distributed ledger networks.

Whether a person carrying on wrapping or bridging activities is carrying on a regulated cryptoasset activity will depend on the substance of the activity and the particular facts and circumstances, including whether any exclusions apply. Given the variety of ways in which such services may be structured and offered, this assessment will need to be undertaken on a case-by-case basis.

As noted in PERG 18.8.3, dealing in this context involves buying, selling, subscribing for or underwriting a qualifying cryptoasset as principal (or as agent). Both buying and selling are broadly defined. Depending on how they are structured and operated, wrapping or bridging arrangements may involve dealing in qualifying cryptoassets (as principal or agent). For example, wrapping or bridging services may fall within the dealing activity because they involve the sale and purchase of qualifying cryptoassets. However, persons facilitating wrapping or bridging for another may fall within scope of arranging deals in qualifying cryptoassets (see PERG 18.8.4). In addition, where a wrapping or bridging arrangement is structured and operated on a custodial basis, a person should also consider whether they are carrying on the regulated activity of safeguarding qualifying cryptoassets (see PERG 18.6).

Question 8.8: Does providing information, analytics, data or dashboard services amount to arranging deals in qualifying cryptoassets?

The provision of information, analytics, research, market data or dashboard services does not, of itself, amount to arranging deals in qualifying cryptoassets.

Whether a person is carrying on that regulated activity depends on the role that they perform in relation to arranging transactions in qualifying cryptoassets. The relevant question is not whether the service provides information that may be useful to a person making a trading decision, but whether the service forms part of the arrangements by which transactions are facilitated or entered into.

A person whose role is limited to solely collecting, displaying, analysing or transmitting information is less likely to be carrying on the regulated activity. This may include, for example, the provision of price feeds, market data, blockchain analytics, research or informational content, or screening, filtering or search functionality.

However, the fact that a service is described as an information, analytics or dashboard service is not determinative. A person may be arranging deals in qualifying cryptoassets where the service goes beyond the provision of information and performs a role in facilitating transactions in qualifying cryptoassets.

Relevant considerations may include whether the service enables, supports or facilitates users to identify counterparties or execution venues, transmit or route orders, access trading functionality, enter into, negotiate or execute transactions, or otherwise participate in the transaction process.

The assessment will depend on the facts and circumstances of the particular case, including the functionality offered to users and the extent to which that functionality forms part of the arrangements by which transactions in qualifying cryptoassets are effected.

The fact that a service may influence a person’s decision whether to buy, sell or hold a qualifying cryptoasset does not, on its own, necessarily mean that the person providing the service is arranging deals in qualifying cryptoassets.

Persons will also need to consider whether they are making financial promotions. See PERG 8.

Question 8.9: I manage investments for clients, including cryptoassets. What permissions do I need?

To carry on the regulated activity of managing investments, the property being managed must consist of, or include, securities, structured deposits or contractually based investments. Alternatively, discretionary portfolio management will generally fall within the scope of this regulated activity where it is possible that the property could consist of, or include, such investments, provided that the other elements of the regulated activity are satisfied. This is the case even if there never has been any investment in these products, as long as there have been representations that there would be. Accordingly, the regulated activity of managing investments is particularly relevant in relation to relevant specified investment cryptoassets, which, by definition, are securities or contractually based investments.

Managing investments in relation to qualifying cryptoassets is not introduced as a new regulated cryptoasset activity under the Cryptoassets Regulations. Where:

Question 8.10: Do I need Part 4A authorisation to advise on cryptoassets?

Providing investment advice in relation to qualifying cryptoassets is not, in itself, a regulated activity. However, where a person does more than advise clients on qualifying cryptoassets, and also facilitates transactions, routes orders or provides any additional service, this could constitute a regulated activity. Therefore, the nature of the advisor’s services should be considered in totality to identify whether any regulated activity (including a regulated cryptoasset activity) might be involved.

Where a person advises clients in connection with specified investment cryptoassets, they should consider whether they require permission to carry on the regulated activity of advising on investments (except P2P agreements) (see PERG 2.7.14CG to PERG 2.7.16AG, and PERG 8.24).

Readers should also note that the perimeter for the purposes of the Regulated Activities Order is different to that of the Financial Promotion Order. As such, any person communicating a financial promotion in connection with a cryptoasset, or in connection with advising on investments, should also consider whether the financial promotion regime applies to their activities, including any applicable restrictions and requirements (see PERG 8).

Question 8.11: What exclusions apply across intermediary activities?

The activities of dealing in qualifying cryptoassets (as principal or agent) and arranging deals in qualifying cryptoassets have a number of shared exclusions. These are:

Question 8.13: I receive or provide qualifying cryptoassets through ‘airdrops’. Do I require Part 4A authorisation?

Where a person ‘airdrops’ a qualifying cryptoasset or receives an airdropped qualifying cryptoasset, this may be excluded from dealing and arranging where there is no consideration provided. ‘Airdrop’ is a non-technical industry term and can cover a range of ways that qualifying cryptoassets are distributed. The labelling of such transfers is not a relevant factor in determining whether this exclusion applies.

This exclusion provides certainty that persons who provide qualifying cryptoassets for no consideration are not dealing; nor are those who receive the qualifying cryptoassets. Persons arranging such transfers may also benefit from the exclusion. Where there is some form of consideration provided, this exclusion will not apply. The ‘by way of business’ requirement as well as the holding out exclusion (see PERG 18.2 and PERG 18.8.18) may also be relevant here.

Question 8.14: What is the scope of the reward distribution exclusion?

The reward distribution exclusion for dealing in qualifying cryptoassets (as principal or agent) and arranging deals in qualifying cryptoassets only applies in respect of the distribution of qualifying cryptoassets which were automatically created as a reward for maintenance of the distributed ledger or the validation of transactions.

This is a limited exclusion intended to capture the distribution of qualifying cryptoassets created through blockchain validation processes such as qualifying cryptoasset staking. It is also limited to the initial distribution to the person who automatically receives the qualifying cryptoasset. It does not extend to subsequent distribution of the qualifying cryptoasset.

In practice, this exclusion will be of limited effect as the distribution of rewards is part of the activity of arranging qualifying cryptoasset staking, which is itself carved out of dealing and arranging activities.

Question 8.15: I issue qualifying cryptoassets to employees as a reward scheme. Do I need authorisation?

It is unlikely that this activity will require authorisation. There is an exclusion from dealing in qualifying cryptoassets (as principal or agent) and arranging deals in qualifying cryptoassets where a qualifying cryptoasset is issued by or on behalf of a person and sold to or subscribed to by an employee or partner of the person carrying on the activity.

This activity only applies to the person who issues the qualifying cryptoasset or another who does so on behalf of that person. It would not apply to a third party who is neither such person.

Question 8.16: What is the exclusion for group companies?

There are 2 intra-group transaction exclusions which apply, respectively, to dealing in qualifying cryptoassets as principal and arranging deals in qualifying cryptoassets. The general principle here is that as long as activities that would otherwise be regulated activities take place wholly within a group of companies, they are excluded:

Question 8.17: What does it mean for issuing a qualifying stablecoin, operating a qualifying CATP and arranging qualifying cryptoasset staking to be excluded from dealing and arranging? 

These exclusions carve out any activity from dealing in qualifying cryptoassets (as principal or agent) or arranging deals in qualifying cryptoassets which is specified by the issuing a qualifying stablecoin, operating a qualifying CATP or arranging qualifying cryptoasset staking activity.

Where a person is issuing a qualifying stablecoin, this exclusion will only apply where they undertake (including by arranging for others to undertake parts of) the issuing a qualifying stablecoin activity such that they are required to be authorised as a qualifying stablecoin issuer. The implications of this exclusion and issuing are addressed in PERG 18.8.5 and PERG 18.8.11.

Similarly, the exclusion for operating a qualifying CATP is only relevant for the activities that constitute the regulated cryptoasset activity of operating a qualifying CATP when undertaken by the operator in that capacity. For example, a QCATP operator that also offers brokerage services will not have those services excluded. 

Often, the activity of arranging qualifying cryptoasset staking will involve the arrangement of qualifying cryptoasset staking as well as the distribution of rewards earned. As such, a person arranging qualifying cryptoasset staking could be carrying on the regulated cryptoasset activity of dealing in qualifying cryptoassets (as principal or agent) or arranging deals in qualifying cryptoassets with respect to the distribution of rewards. Because this exclusion specifies arranging qualifying cryptoasset staking, a person who has permission to carry on this activity will not also need permission for dealing in qualifying cryptoassets (as principal or agent) or arranging deals in qualifying cryptoassets for those activities carried on in relation to arranging qualifying cryptoasset staking that could be in scope of dealing or arranging.

Question 8.18: What are the exclusions for the activity of dealing in qualifying cryptoassets as principal?

Of particular significance is the exclusion in article 9U (Article 9T exclusion: absence of holding out etc.) of the Regulated Activities Order. This exclusion applies where a person does not hold themselves out as:

Question 8.19: What is the raising capital exclusion for dealing in qualifying cryptoassets?

This exclusion refers to a limited circumstance where a person (A) or someone on their behalf creates and mints qualifying cryptoassets and deals in them with the sole purpose of raising capital for A.

Question 8.20: What about arrangements that do not cause a deal?

Arranging (bringing about) deals in qualifying cryptoassets applies only where the arrangements bring about or would bring about a particular transaction in qualifying cryptoassets. A person will bring about a transaction only if their involvement in the chain of events leading to a transaction is of sufficient importance that, without that involvement, it would not take place.

This exclusion at article 9Z (Article 9Y exclusion: arrangements not causing a deal) of the Regulated Activities Order is not available for making arrangements with a view to transactions in qualifying cryptoassets, which is a much broader activity.

Question 8.21: What about introducing a firm to an authorised person with a Part 4A permission to carry on regulated cryptoasset activities?

Arrangements that are solely arrangements under which persons will be introduced to an authorised person with a Part 4A permission to carry on regulated cryptoasset activities are excluded from the activity of making arrangements with a view to transactions in qualifying cryptoassets.

Making arrangements with a view to transactions in qualifying cryptoassets applies to ongoing arrangements made with a view to transactions taking place from time to time as a result of persons having taken part in the arrangements. It does not include one-off introductions or introductions that are not part of an ongoing pre-existing arrangement between introducer and client.

In the FCA’s view, this means that any arrangements which go beyond a sole introduction to an authorised person could be captured as arrangements with a view to transactions.

Q8.23: What if the arranger is a party to the transaction?

Arranging transactions to which the arranger is a party is excluded from arranging deals in qualifying cryptoassets.

The main purpose of this exclusion is to ensure that a person is not regarded as arranging deals for another when the transaction in question is one to which they intend to be a party. As a result, a person cannot both be engaging in dealing in qualifying cryptoassets (as principal or agent) and arranging deals in qualifying cryptoassets for another as regards any particular qualifying cryptoasset transaction. Where the person is a party to the transaction, this is captured by the dealing activity (unless an exclusion applies).

Where a person is making arrangements with a view to transactions in qualifying cryptoassets with a view to a transaction they are entering in themselves, this will also be excluded from making arrangements with a view to transactions in qualifying cryptoassets.

Q8.24: What exclusions apply to trustees, nominees and personal representatives?

Arrangements made by a person acting as trustee, nominee or personal representative are excluded where these are with a view to a transaction between:

Question 9.1: What is cryptoasset lending and borrowing and what regulated activities might be involved?

Qualifying cryptoasset lending or borrowing are not distinct regulated activities but examples of transactions in qualifying cryptoassets that are likely captured by other regulated cryptoasset activities.

Qualifying cryptoasset lending describes the disposal of a qualifying cryptoasset from a person (A) to or via another person (B), subject to an obligation or right to reacquire the same or equivalent qualifying cryptoasset from B, typically with compensation paid to A in the form of yield.

Qualifying cryptoasset borrowing is similar but operates with qualifying cryptoassets moving in the opposite direction. It describes the disposal of a qualifying cryptoasset from or via person B to person A, subject to an obligation or right to reacquire the same or equivalent qualifying cryptoasset from A, which may include the provision of collateral and/or payment of interest from A.

Viewed holistically, these transactions may resemble ‘loans’, but the legal implications of the precise arrangements matter more than the terminology used. In most instances, the various transactions that constitute qualifying cryptoasset lending or borrowing will amount to deals, not loans. This is because the disposal of a qualifying cryptoasset from person A to person B and/or the disposal of a qualifying cryptoasset from person B to person A would constitute a deal on the basis that ‘dealing’ includes buying, selling, subscribing for or underwriting a qualifying cryptoasset, and ‘buying’/‘selling’ are defined in article 3 of the Regulated Activities Order as including acquisition/disposal for valuable consideration. The reacquisition of the same or equivalent qualifying cryptoasset would also constitute a deal. Further, where yield is provided to person A and that yield is in qualifying cryptoassets, or where A provides qualifying cryptoassets as interest payments, this would also constitute dealing.

Whether person A and/or person B require permission in order to carry on these activities will depend on the role they play in these arrangements. It will also depend on whether they are engaging in these deals themselves as principal or agent, or whether they are arranging these deals or making arrangements with a view to these deals in qualifying cryptoassets. If, for example, person A is a consumer, they are less likely to be carrying on these activities by way of business and/or they may not be holding themselves out as carrying on these activities by way of business, and so may be less likely to need to be authorised or exempt. Readers should have regard to the guidance at PERG 18.8.3 when considering whether their activities amount to dealing in qualifying cryptoassets (as principal or as agent), and PERG 18.8.4 regarding arranging deals in qualifying cryptoassets.

Cryptoasset lending and borrowing arrangements may also involve the regulated activity of safeguarding cryptoassets or arranging cryptoasset safeguarding – for example, where person B safeguards the qualifying cryptoassets ‘lent’ to them or the collateral held, where the collateral is made up of qualifying cryptoassets or relevant specified investment cryptoassets. Readers should also have regard to the guidance at PERG 18.6 when considering whether their activities amount to safeguarding cryptoassets or arranging cryptoasset safeguarding.

Where the activity is within the scope of the dealing in qualifying cryptoassets (as principal or agent) activity or the arranging deals in qualifying cryptoassets activity, the exclusions applicable to those activities may be relevant. This is also true for the safeguarding cryptoassets and arranging cryptoasset safeguarding activities, in respect of which certain exclusions may be available.

There may be other models, however, that operate differently and so would have different implications as far as the perimeter is concerned, as they engage additional or other regulated activities. A case-by-case assessment is always required.

For example, there may be arrangements that are described as lending and involve forms of margin trading. Those persons offering such types of arrangement should consider PERG 2.6 and PERG 13.4 and whether the arrangements could involve another type of specified investment, like a derivative, and may therefore engage other regulated activities for which permission may be required.

Question 9.2: Is cryptoasset lending or borrowing different from regulated credit?

As explained in PERG 18.9.1, qualifying cryptoasset lending or borrowing are not distinct regulated cryptoasset activities in their own right, but they will typically amount to dealing in qualifying cryptoassets (as principal or agent) or arranging deals in qualifying cryptoassets by virtue of involving the disposal and acquisition of qualifying cryptoassets, concluded or arranged by the relevant parties. Viewed holistically, the disposal and subsequent acquisition of the qualifying cryptoassets may resemble a loan, and may be called ‘lending’ or ‘borrowing’, but the appropriate legal characterisation depends on the substance of the arrangements and the role performed by the relevant parties.

The conclusion or arrangement of a transaction that is properly characterised as a deal is fundamentally different to the provision of credit. Where cryptoasset lending or borrowing involves dealing, it is very unlikely to constitute or involve consumer credit lending, which is about the provision of credit, not dealing.

Ultimately, however, whether a lending or borrowing arrangement involving cryptoassets constitutes consumer credit lending will depend on the specific legal and commercial structure of the arrangement, as well as the nature of the parties involved.

Question 10.1: What does the arranging qualifying cryptoasset staking activity include?

Arranging qualifying cryptoasset staking means the use of a qualifying cryptoasset in blockchain validation. Blockchain validation refers to the validation of transactions on a blockchain or a network that uses distributed ledger technology or other similar technology, and includes proof of stake distributed ledger technology consensus mechanisms. Article 9Z6 (Qualifying cryptoasset staking) of the Regulated Activities Order defines arranging qualifying cryptoasset staking as the activity of ‘making arrangements on behalf of another person (whether as principal or agent) for qualifying cryptoasset staking’. 

Therefore, this is only a regulated activity if the arrangement relates to the use of qualifying cryptoassets in blockchain validation.

In the FCA’s view, a person ‘makes arrangements on behalf of another person’ for arranging qualifying cryptoasset staking where they perform an intermediation role enabling qualifying cryptoassets to be staked. Arranging is a broad activity. However, the involvement must go beyond merely introducing a person to an authorised person or enabling one party to communicate with others (both introducing and enabling communication are excluded).

Arranging qualifying cryptoasset staking can include a range of different models where one person arranges qualifying cryptoasset staking for another. This can include models such as ‘pooled custodial staking’, where a client transfers control of their qualifying cryptoassets to a staking provider, who pools cryptoassets together from multiple clients to be used in blockchain validation. It can also include arrangements where a person provides services such as an interface to stake qualifying cryptoassets. This is subject to exclusions (see PERG 18.10.2, PERG 18.10.4 and PERG 18.10.5).

Examples of making arrangements in relation to staking that may fall within scope of the arranging qualifying cryptoasset staking activity include:

Question 10.2: Is the operation of a staking validator node captured in the arranging qualifying cryptoasset staking activity?

Article 9Z9 (Article 9Z6 exclusion: technical services exclusion) of the Regulated Activities Order provides an exclusion to the arranging qualifying cryptoasset staking activity, such that a technical service provided by a person (P) will not constitute the regulated activity of arranging qualifying cryptoasset staking, provided that:

Question 10.3: Is offering clients the ability to operate their own validator node for solo staking captured in the staking activity?

In the FCA’s view, a person solely performing the function of providing clients with the technical means to stake their qualifying cryptoassets on a blockchain themselves (eg, by providing the software necessary to do this), without any further involvement or input from that person, would not fall within scope of arranging qualifying cryptoasset staking.

However, as above, if the person went beyond this and also engaged in other activities with respect to arranging qualifying cryptoasset staking, such as those mentioned in PERG 18.10.2, this may fall within the scope of the arranging qualifying cryptoasset staking activity. Further, if the person provided additional services, such as safeguarding cryptoassets in respect of the staked qualifying cryptoassets or qualifying cryptoassets generated as rewards, this may fall within scope of safeguarding cryptoassets or arranging cryptoasset safeguarding for which permission may be required.

In considering whether a service goes beyond a technical service for these purposes, relevant considerations may be similar to those discussed in PERG 18.8.22 concerning services that go beyond merely facilitating communication. The relevant question is whether the person’s services extend beyond the provision of the technical means through which staking may occur and amount to arranging qualifying cryptoasset staking.

Question 10.4: Is introducing clients to persons offering to arrange qualifying cryptoasset staking captured in the staking activity?

Article 9Z7 (Article 9Z6 exclusion: introducing) of the Regulated Activities Order excludes from the regulated activity of arranging qualifying cryptoasset staking the provision of services by a person (‘A’) solely for the purpose of introducing a person (‘B’) to an authorised person with Part 4A permission to carry on the regulated activity of arranging qualifying cryptoasset staking (‘C’). Therefore, if C, being the person offering to arrange qualifying cryptoasset staking, is an authorised person, and all A does is introduce B to C, this is not a regulated activity that would require authorisation in its own right.

Readers may also benefit from reading the guidance in PERG 18.8.21 regarding the introducing exclusion from the activity of arranging deals in qualifying cryptoassets.

Question 10.5: Is enabling parties to communicate with each other captured in the arranging qualifying cryptoasset staking activity?

Article 9Z8 (Article 9Z6 exclusion: enabling parties to communicate) of the Regulated Activities Order provides that a person does not carry on the regulated cryptoasset activity of arranging qualifying cryptoasset staking merely by providing the means by which one party to an arrangement, or potential arrangement, is able to communicate with other parties. If they do more than merely provide the means of communication, however, this would not be excluded.

Readers may also benefit from reading the guidance in PERG 18.8.22 regarding the mere communications exclusion from the activity of arranging deals in qualifying cryptoassets.

Question 10.6: Does a person offering liquid staking services require authorisation?

The provision of a liquid staking token for a staked qualifying cryptoasset and subsequent exchange for the staked asset is not within the scope of the arranging qualifying cryptoasset staking activity. This is more likely to constitute dealing in qualifying cryptoassets (as principal or agent) (see PERG 18.8.3) The person arranging for a liquid staking token to be issued and/or arranging the exchange of a liquid staking token for the staked qualifying cryptoasset may be arranging deals in qualifying cryptoassets. (See PERG 18.8.4 on arranging activity.)

Where the person also arranges qualifying cryptoasset staking as part of their service, whether or not related to the provision of any liquid staking tokens, this would exceed the scope of dealing or arranging activities and likely require permission for arranging qualifying cryptoasset staking.

Question 10.7: Does a person arranging qualifying cryptoasset staking also require safeguarding cryptoassets permission?

In the course of their business, persons carrying on the activity of arranging qualifying cryptoasset staking may also safeguard clients’ staked qualifying cryptoassets or their qualifying cryptoassets earned as rewards through blockchain validation (or arrange for another person to do this). As such, they may also require permission for safeguarding cryptoassets or arranging cryptoasset safeguarding (see PERG 18.10.2 and PERG 18.10.3).

Question 10.8: Does a person offering a return generated through the use of qualifying cryptoassets without engaging in blockchain validation require authorisation?

A person would only be carrying on the regulated activity of arranging qualifying cryptoasset staking if their arrangements relate to the use of a qualifying cryptoasset in blockchain validation or a network that uses distributed ledger technology or other similar technology. In the FCA’s view, a service which generates returns through the use of qualifying cryptoassets, but does not involve blockchain validation, would not fall within scope of the arranging qualifying cryptoasset staking activity, though it may constitute one or more other regulated cryptoasset activities.

Question 10.9: When does a service go beyond merely providing information, communication or technical functionality?

Certain exclusions referred to in this chapter apply where a person’s role is limited to providing communications, information or technical functionality. Whether a person can rely on those exclusions depends on the substance of the service provided and the role that service plays in relation to transactions in qualifying cryptoassets.

The fact that a service is useful, convenient, commercially valuable or designed specifically for the cryptoasset sector does not, of itself, mean that the person is carrying on a regulated activity. The relevant question is whether the person is merely providing information, communications or technical functionality, or whether the service forms part of the arrangements by which transactions in qualifying cryptoassets are facilitated, brought about or otherwise enabled.

The presence of one or more of these features does not necessarily determine the outcome. The assessment depends on the service as a whole and the role a person performs in the relevant arrangements. The assessment is not dependent on the way a person describes themselves or on the terminology used.

Conversely, services that are limited to the passive display of information, the provision of general communications facilities, or the provision of technical tools that users may employ independently are less likely, on their own, to amount to arrangements for transactions in qualifying cryptoassets. Whether a person is carrying on the regulated activity of arranging deals in qualifying cryptoassets will always depend on the facts of the particular case.

Question 11.1: What is the effect of exclusions for regulated cryptoasset activities?

Where an exclusion applies, an activity that would otherwise fall within a regulated cryptoasset activity is treated as not forming part of that regulated activity. It may fall within another regulated activity. Whether an exclusion applies will be fact-specific.

Not all of the general exclusions set out elsewhere in the Regulated Activities Order have been replicated for the regulated cryptoasset activities. A person should therefore not assume that an exclusion which applies to a traditional regulated activity will apply in the same way, or at all, to a regulated cryptoasset activity. In a number of cases, HM Treasury has instead applied tailored exclusions within the cryptoasset provisions themselves.

More generally, none of these tailored exclusions are subject to article 4(4) (Specified activities: general) of the Regulated Activities Order, which limits the scope of various exclusions in the Regulated Activities Order when a person is engaged in investment services or activities. For example, unlike the exclusion in article 15 (Absence of holding out etc.) of the Regulated Activities Order, the exclusion in article 9U of the Regulated Activities Order is not limited by the override in article 4(4). A person only has to consider the content of article 9U to see whether they are holding themselves out as buying and selling qualifying cryptoassets, and not the MiFID overlay arising as a result of article 4(4).

Question 11.2: Are any existing Regulated Activities Order general exclusions relevant to the new regulated cryptoasset activities?

Only a limited number of existing general exclusions have been applied to the new regulated cryptoasset activities. These exclusions include:

Question 11.3: Are there any new general exclusions relevant to the new regulated cryptoasset activities?

The following 2 exclusions apply to all regulated cryptoasset activities:

Question 11.4: When does the exclusion for the sale of goods and services (article 9Z10 of the Regulated Activities Order) apply?

Article 9Z10 of the Regulated Activities Order provides a general exclusion for certain activities carried on for the purpose of, and, where applicable, in connection with, the sale of goods or supply of services.

Broadly speaking, the exclusions focus on cases where the main business of a person is to sell goods or supply services, but where certain activities may have to be carried on for the purposes of that business which would otherwise be regulated activities.

For the purposes of this exclusion, the sale of goods and services does not include the sale of qualifying cryptoassets as ‘goods’, or the carrying on of regulated cryptoasset activities as ‘services’.

This exclusion is structured in a way that makes it important to consider which limb (Article 9Z10(1) or (3)) applies on the facts:

Question 11.5: We are a non-financial services firm supplying goods and services both directly and through a network of agents to our retail customers and accept settlement for our goods and services in the form of qualifying cryptoassets. We do not hold the qualifying cryptoassets of our customers and only receive these upon settlement of the customer transaction. Do we require authorisation?

No. Though you may be undertaking a regulated cryptoasset activity by accepting settlement in qualifying cryptoassets, you can rely on the exclusion in article 9Z10 of the Regulated Activities Order, provided that your main business is to sell goods or supply services to your customers. Various factors are likely to be relevant for the purposes of determining your main business, including turnover, profit, capital employed, numbers of employees and time spent by your employees. The network of agents used to supply goods and services may benefit from this exclusion as well via the related sale or supply.

Supplying services for the purposes of this exclusion does not include regulated cryptoasset activities.

Question 11.6: Are activities incidental to the carrying on of a profession or business (Article 9Z11 of the Regulated Activities Order) excluded?

Yes, article 9Z11 of the Regulated Activities Order excludes activities that are carried out by a person on an incidental basis in the course of that person’s profession or business that does not otherwise consist of regulated activities, and where the profession or business is supervised and regulated by a designated professional body listed in article 2 (Designated professional bodies) of the Financial Services and Markets Act 2000 (Designated Professional Bodies) Order 2001 (SI 2001/1226).

Article 9Z11(2) sets out factors relevant to whether an activity is carried on in an incidental manner. These include:

Question 12.1: Does the definition of ‘cryptoassets’ in the Money Laundering Regulations capture the same types of assets as the Act and the Regulated Activities Order?

The Money Laundering Regulations and the Act regimes will continue to operate concurrently as the regimes do already. A person undertaking an activity involving ‘cryptoassets’ will need to determine whether those activities fall within the scope of one or both of the Money Laundering Regulations, and the Act and the Regulated Activities Order.

Under the Money Laundering Regulations, ‘cryptoassets’ are defined as a cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and can be transferred, stored or traded electronically. In practice, this may be expected to capture a range of cryptoassets, including exchange tokens, stablecoin tokenised e-money, non-fungible tokens (NFTs), limited network tokens (LNTs – ie, cryptoassets that can only be redeemed with the issuer or used to acquire goods or services within a limited network), and some distributed ledger technology (DLT) records.

Question 12.2: If I am exchanging limited network tokens, do I need to register under the Money Laundering Regulations if this type of asset is not a ‘qualifying cryptoasset’ under the Regulated Activities Order?

Limited network tokens are excluded from the definition of ‘qualifying cryptoasset’ (see PERG 18.4) and, as a result, activities carried on in relation to these tokens would not constitute one of the new regulated cryptoasset activities, meaning permission under Part 4A of the Act would not be needed. However, Money Laundering Regulations registration may be required, because the regimes are not identical in scope even if they both broadly relate to cryptoassets.

A person will need to assess the registration requirements under the Money Laundering Regulations separately from the requirements for authorisation under the Act and the Regulated Activities Order.

Question 12.3: Will cryptoasset firms still need to comply with the Money Laundering Regulations if they are authorised under the Act?

Yes. Similar to many other authorised persons under Part 4A of the Act and firms registered under the Money Laundering Regulations, an authorised cryptoasset firm or a specified investment cryptoasset firm (as defined in the Money Laundering Regulations) will need to comply with the Money Laundering Regulations where that authorised cryptoasset firm or specified investment cryptoasset firm will act, or will continue to act, as a cryptoasset exchange provider or custodian wallet provider under the Money Laundering Regulations.

Question 12.4: If I am currently registered as a cryptoasset exchange provider under the Money Laundering Regulations, what permissions under the Act will I need?

Each registered cryptoasset exchange provider will need to assess their current and proposed operating models against the requirements for authorisation under the Act and the Regulated Activities Order.

The types of activities that may be relevant for a cryptoasset exchange provider include, but are not limited to, operating a qualifying CATP, dealing in qualifying cryptoassets as principal, dealing in qualifying cryptoassets as agent, arranging deals in qualifying cryptoassets, arranging qualifying cryptoasset staking and issuing a qualifying stablecoin.

Question 12.5: If I am currently registered as a custodian wallet provider under the Money Laundering Regulations, what permissions under the Act will I need?

Each registered custodian wallet provider will need to assess their current and proposed operating models against the requirements for authorisation under the Act and the Regulated Activities Order. The type of activity that may be relevant for custodian wallet providers is safeguarding cryptoassets.

Question 12.6: If I am authorised for regulated cryptoasset activities under the Act, do I also need to register under the Money Laundering Regulations?

Where an authorised cryptoasset firm or a specified investment cryptoasset firm will also act as a cryptoasset exchange provider and/or a custodian wallet provider under the Money Laundering Regulations, that person will not need to separately undertake registration under the Money Laundering Regulations. However, they must notify the FCA that they intend, or have begun, to act as a cryptoasset exchange provider or a custodian wallet provider, either before, or within 28 days of, doing so. Cryptoasset exchange providers and custodian wallet providers that are exempt from separate registration under the Money Laundering Regulations must comply with the remaining provisions in the Money Laundering Regulations.

Question 12.7: If I am not authorised for regulated cryptoasset activities under the Act but will act as a cryptoasset exchange provider or custodian wallet provider, do I need to register under the Money Laundering Regulations?

Cryptoasset exchange providers and custodian wallet providers that are not authorised cryptoasset firms or specified investment cryptoasset firms are required to be registered with the FCA under the Money Laundering Regulations.

Question 12.8: What steps must I take if I am an authorised person with permission to carry on one or more regulated cryptoasset activities, or one or more regulated activities, in relation to specified investment cryptoassets, but will cease to act as a cryptoasset exchange provider or custodian wallet provider?

Where an authorised cryptoasset firm or a specified investment cryptoasset firm ceases to act as a cryptoasset exchange provider or a custodian wallet provider, it must inform the FCA within 28 days, beginning with the day of ceasing to act as such.

Question 12.9: If I benefit from an exclusion under the Regulated Activities Order, how does that affect my position under the Money Laundering Regulations?

There are various exclusions that apply to the new regulated cryptoasset activities in the Regulated Activities Order. These include the exclusions that apply to each of the new regulated cryptoasset activities (such as article 9Z and article 9Z1), as well as the exclusions at article 42A and article 72AA. The Money Laundering Regulations do not include equivalent exclusions that apply to the cryptoasset exchange provider and custodian wallet provider activities. A person who benefits from an exclusion under the Regulated Activities Order will need to separately consider whether they are required to apply to the FCA for registration under the Money Laundering Regulations as a cryptoasset exchange provider or a custodian wallet provider.

Question 12.10: If I am conducting regulated cryptoasset activities from overseas, but serve UK customers, do I need to follow the Money Laundering Regulations obligations, and will I be within scope of the Act?

The geographic scope of the Money Laundering Regulations and the Act, the Regulated Activities Order and the Financial Promotion Order regimes are different and therefore could potentially capture different natural and legal persons when conducting the activities under the respective pieces of legislation. The Money Laundering Regulations apply to cryptoasset exchange providers and custodian wallet providers who are based in the UK, and to firms where the firm’s registered office (or head office) is in the UK and the day-to-day management is taking place from that registered office, head office or another establishment maintained by the firm in the UK. In contrast, the broader geographic perimeter for regulation under the Act focuses on persons who are, or who are deemed to be, ‘carrying on activities by way of business’ in the UK. Therefore, the geographic scope of the perimeter under the Act is different from that under the Money Laundering Regulations and will need to be considered in each case.

Question 12.11: Is the meaning of ‘by way of business’ in the Money Laundering Regulations the same as the ‘by way of business’ test for the new regulated activities?

As explained at PERG 18.2, the Cryptoassets Regulations apply a narrower concept of what ‘by way of business’ means for the new regulated cryptoasset activities than the business test that would otherwise apply under the Act. Persons who are not acting by way of business for the purpose of the new regulated cryptoasset activities will need to separately consider whether they are acting by way of business for the purposes of regulation 14A (Cryptoasset exchange providers and custodian wallet providers) of the Money Laundering Regulations. Persons will also need to consider whether they are ‘acting in the course of business’ and ‘carrying on business’ for the purposes of regulations 8 (Application) and 9 (Carrying on business in the United Kingdom) of the Money Laundering Regulations.

The diagram below provides a high‑level overview of the factors that are relevant in assessing whether a cryptoasset is a qualifying cryptoasset for the purposes of the regulatory perimeter.

This diagram provides a high-level overview of the factors that are relevant in assessing whether a cryptoasset is a specified investment cryptoasset and a relevant specified investment cryptoasset for the purposes of the perimeter.

The diagram below summarises the key questions that may be relevant when considering whether a person needs to be authorised under the Act to carry on a regulated cryptoasset activity.