PERG 18.2 What does it mean to carry on regulated activities ‘by way of business’?

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.