PERG 18.3 What does ‘in the UK’ mean?

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 3.2: When is operating a qualifying cryptoasset trading platform (QCATP), dealing (as principal/agent) or arranging deals regarded as carried on ‘in the UK’?

A person who is dealing in qualifying cryptoassets (as principal or agent), arranging deals in qualifying cryptoassets or operating a qualifying CATP in the UK will be carrying out these activities in the UK.

Where persons are carrying out these activities outside the UK, the Act sets out when this is considered to be in the UK. Section 418(6C) of the Act sets out that a person will be deemed to be carrying out regulated activity in the UK where they are involved in the sale or subscription of a qualifying cryptoasset to, or by, a consumer in the UK. In this context, a ‘consumer’ means an individual in the UK who is acting for a purpose other than for any trade, business or profession carried on by that individual (see PERG 18.1.13).

This means such persons will need to be authorised in the UK (assuming all other criteria are met), regardless of whether the person offering the service is based in the UK or overseas. The relevant activities for these purposes are:

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 3.6: How does the overseas persons exclusion (OPE) work in respect of the new regulated cryptoasset activities?

The Cryptoassets Regulations do not apply the OPE to the new regulated cryptoasset activities. Accordingly, the OPE (see PERG 2.9.17G) will not be available in relation to those activities.

In considering the territorial scope of the regulated cryptoasset activities, it is important to distinguish between the question of whether an activity is carried on in the UK and the availability of any exclusion. The OPE is not part of the territorial analysis of whether an activity is carried on in the UK and does not determine the territorial scope of the regime. Rather, a person must first consider whether the relevant activity is carried on in the UK by reference to the ordinary territorial principles and any applicable deeming provisions in section 418 of the Act. The relevance of the OPE, where available (in relation to regulated activities other than regulated cryptoasset activities: see PERG 2.9.15G to PERG 2.9.17CG), arises only after that territorial analysis has been undertaken.

More generally, the effect of section 418(1) of the Act is that, in the cases it describes, a person who would not otherwise be regarded as carrying on regulated activity in the UK, is, for the purposes of the perimeter, to be regarded as carrying on such activity in the UK (PERG 2.4.3G). Having regard to this, in the FCA’s view, the effect of section 418(6C), outlined in PERG 18.3.2, is to bring within the perimeter an overseas person dealing in qualifying cryptoassets as principal, when they are involved in the sale of a qualifying cryptoasset to a consumer in the UK, in scenarios when this would not otherwise have been the case.

As noted above, though, it will not always be the case that such an overseas person will be deemed to be carrying on regulated activity in the UK – for example, when they deal as principal with a UK authorised person with a permission for dealing in qualifying cryptoassets as principal and acting as such as an intermediary between the overseas person and a UK consumer.

In the FCA’s view, consistent with the section 418 framework and its intended purpose, it follows that where an overseas person enters into a transaction, from outside the UK, with a UK authorised person with a permission for dealing in qualifying cryptoassets as principal, acting on its own account or on behalf of persons other than consumers, the overseas person will not be carrying on the activity of dealing in qualifying cryptoassets (as principal or agent) in the UK. However, where an overseas person carries out regulated activities in relation to specified investment cryptoassets, the OPE may apply, depending on the activity.

Question 3.7: Does reverse solicitation operate as an exclusion or exemption from carrying on a regulated cryptoasset activity?

No. Reverse solicitation is not, in itself, an exemption or exclusion from carrying on a regulated cryptoasset activity. The term ‘reverse solicitation’ is generally used to describe a situation where a customer approaches a firm on that customer’s own initiative, rather than in response to any solicitation, marketing or other promotion by the firm.

Accordingly, the fact that a customer has approached a person on its own initiative is not determinative of whether a regulated cryptoasset activity is carried on by way of business in the UK, or whether Part 4A permission is required. Whether a person requires Part 4A permission will depend on the relevant facts and circumstances, including the factors set out in PERG 18.1.11.

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.