PERG 18.1 Introduction

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).