CP26/13 introduced the proposed PERG 19, which explains how the FCA expects firms to determine whether the new regulated cryptoasset activities are carried on in the UK for the purposes of FSMA.
The guidance supplements the crypto specific amendments to section 418 FSMA introduced by regulation 41(6) of the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026. These provisions mean that an overseas crypto firm may, in certain circumstances, be treated as carrying on regulated activity in the UK even where it has no UK establishment.
The starting point remains section 19 FSMA, which stipulates that a person must not carry on a regulated activity in the UK by way of business unless authorised or exempt. Section 418, however, identifies circumstances in which an activity carried on outside the UK is nevertheless deemed to be carried on in the UK.
An activity specific territorial framework
There is no single territorial test for all regulated cryptoasset activities. The applicable test depends on the activity being performed. For operating a qualifying cryptoasset trading platform, dealing as principal or agent, and arranging deals, the principal test is whether an overseas firm is involved in a sale or subscription of a qualifying cryptoasset to or by a UK consumer.
Section 418(6F) defines a UK consumer as an individual who is in the United Kingdom and acting for purposes outside that individual’s trade, business or profession.
Different tests apply to safeguarding, arranging safeguarding, arranging staking and issuing qualifying stablecoins.
Operating a qualifying cryptoasset trading platform (Article 9S RAO)
Section 418(6C) FSMA applies to an overseas person operating a QCATP. The overseas operator may be deemed to carry on the activity in the UK where it is involved in a sale or subscription of a qualifying cryptoasset to or by a UK consumer.
The rule does not apply solely by reason of that UK consumer nexus where an authorised person is interposed between the overseas firm and the consumer and is acting, in relation to the relevant transaction, as an authorised QCATP operator or principal dealer.
The territorial question is therefore whether the overseas platform is involved in the UK consumer’s transaction and, if so, whether the statutory chain is broken by an appropriately authorised intermediary acting in the required capacity.
Dealing in qualifying cryptoassets as principal (Article 9T RAO)
Section 418(6C) also applies to an overseas principal dealer involved in a sale or subscription of a qualifying cryptoasset to or by a UK consumer.
This may bring overseas dealers, market makers, liquidity providers and OTC desks within the UK perimeter even where they have no UK establishment.
The same chain breaking mechanism applies. An interposed person must be authorised to operate a QCATP or deal as principal and must actually act in that capacity in relation to the relevant transaction.
An intermediary acting only as agent or arranger does not provide that chain break.
Dealing in qualifying cryptoassets as agent (Article 9W RAO)
An overseas agent may be deemed under section 418(6C) to carry on regulated activity in the UK where it is involved in a sale or subscription of a qualifying cryptoasset to or by a UK consumer.
An interposed agent does not break the statutory chain for an overseas firm behind it. Proposed PERG 19.3.1 confirms that the chain is broken only by an authorised QCATP operator or principal dealer acting in that capacity.
Accordingly, the overseas agent may itself be within scope, while an overseas principal dealer or platform behind it may also remain within scope where it continues to be involved in the relevant transaction with the UK consumer.
Arranging deals in qualifying cryptoassets (Article 9Y RAO)
An overseas arranger may be deemed under section 418(6C) to carry on regulated activity in the UK where it is involved in a sale or subscription of a qualifying cryptoasset to or by a UK consumer.
An interposed arranger does not break the statutory chain. The chain is broken only where an intermediary is authorised to operate a QCATP or deal as principal and acts in that capacity in relation to the relevant transaction.
The arranger may therefore itself fall within the UK perimeter, while an overseas platform or principal dealer behind it may also remain within scope.
Safeguarding qualifying cryptoassets and arranging safeguarding (Article 9N RAO)
The territorial rule for safeguarding and arranging safeguarding is contained in section 418 (6E) FSMA.
An overseas person carrying on either activity may be deemed to carry it on in the UK where the activity is performed on behalf of a UK consumer.
However, the overseas person is not caught by this deeming rule where it acts at the direction of another person that is authorised under Part 4A FSMA to carry on the relevant activity.
The territorial question is therefore whether the overseas provider carries on the activity on behalf of a UK consumer and, if so, whether it acts independently or under the direction of an appropriately authorised person.
Arranging qualifying cryptoasset staking (Article 9Z6 RAO)
Section 418(6E) also applies to arranging qualifying cryptoasset staking.
An overseas person may be deemed to carry on the activity in the UK where it arranges staking on behalf of a UK consumer. As with safeguarding, the deeming rule does not apply where the overseas provider acts at the direction of a person authorised under Part 4A FSMA to carry on that activity.
The territorial question is whether the overseas provider is arranging staking directly for a UK consumer or is merely performing an outsourced role under the instructions of a UK authorised firm that takes regulatory responsibility for the service.
Issuing qualifying stablecoins (Article 9M RAO)
Issuing qualifying stablecoins is subject to a different territorial test under section 418(6B) FSMA.
For a person operating from outside the UK, the activity is deemed to be carried on in the UK where all of the component elements of the article 9M issuance activity are carried on in the UK on that person’s behalf. This means that the offering of the qualifying stablecoin, the undertaking to redeem it, and the holding or arranging of the holding of the backing assets used to maintain its stable value must all be carried on in the UK for the overseas issuer.
The focus is therefore not principally on whether the stablecoin is purchased, held or used by a UK consumer. Instead, the territorial analysis looks at where the substantive issuance functions are carried on and whether they are performed by, or on behalf of, the issuer.
An overseas issuer may consequently fall within the UK perimeter where all of those issuance functions are undertaken in the UK on its behalf, even if the issuer itself has no UK establishment. However, the performance of only one or two of those functions in the UK would not, by itself, satisfy the section 418(6B) deeming rule. Conversely, the fact that UK consumers can purchase, hold or use an overseas stablecoin does not, by itself, bring the overseas issuer within the UK issuance perimeter; the relevant question is whether all of the article 9M issuance functions are carried on in the UK on its behalf.
Practical implications for overseas firms
The ordinary overseas persons exclusion does not apply to the new regulated cryptoasset activities. Overseas firms must instead apply the crypto specific territorial rules in the amended section 418 FSMA and the accompanying proposed PERG 19 guidance.
The practical effect is that offshore and cross border models cannot be assessed simply by asking where the relevant entity is incorporated or whether it has a UK branch.
Firms will need to identify:
- the particular regulated cryptoasset activity;
- the applicable section 418 territorial test;
- whether a UK consumer is involved;
- which firms remain involved in the relevant transaction or service;
- whether an intermediary is interposed and the capacity in which it acts; and
- whether the relevant chain break or authorised person direction carve out applies.
The central message is that an offshore establishment will not, by itself, keep a crypto firm outside the UK regulatory perimeter. The more important question is whether the firm’s activities are deemed to be carried on in the UK under the new section 418 rules.
Contact
Nima Dehmeshki
Regulatory consultant
