PERG 18.8 Activity: intermediary activities

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 8.5: Does a person issuing qualifying stablecoins need dealing permission?

The new activities of dealing in qualifying cryptoassets (as principal or agent), arranging deals in qualifying cryptoassets and making arrangements with a view to transactions in qualifying cryptoassets have an exclusion for the activity of issuing a qualifying stablecoin. The scope of the issuing a qualifying stablecoin activity is set out in PERG 18.5.

As noted in PERG 18.5.1, the issuing a qualifying stablecoin activity has 3 limbs. It is only where a person (who has created the qualifying stablecoin or on whose behalf it was created) undertakes or arranges for another to undertake all 3 limbs that they are undertaking the issuing a qualifying stablecoin activity and are excluded from dealing in qualifying cryptoassets (as principal or agent) or arranging deals in qualifying cryptoassets. If they are not undertaking the issuing activity under article 9M of the Regulated Activities Order, they will not benefit from the exclusion from dealing.

Where a person undertakes issuance or redemption for a qualifying stablecoin but does not fall within scope of the issuing a qualifying stablecoin activity, they may require a dealing permission. This could be due to a number of different circumstances, including where:

Question 8.6: Does a person issuing qualifying cryptoassets need a dealing permission?

Where a person issues qualifying cryptoassets by offering qualifying cryptoassets for sale (or offers for persons to subscribe for or underwrite them) this may fall within scope of dealing. Issuers should consider whether they are excluded from the dealing activity. See PERG 18.8.17 and PERG 18.8.19.

Where an overseas person issues qualifying cryptoassets to consumers in the UK, the provisions of section 418 of the Act relating to territorial scope for dealing will be relevant. See PERG 18.3.2.

Persons who arrange transactions between a client and an issuer may require an arranging permission.

Exclusions may apply to a person issuing their own cryptoassets, such as where they are issued to employees for raising capital or the distribution of rewards for arranging qualifying cryptoasset staking. See the guidance at PERG 18.8.11, PERG 18.8.14 and PERG 18.8.15.

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 8.18: 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: