What UK’s new cryptoasset rules mean for overseas crypto firms

Once the new regime comes into force in October 2027, certain overseas cryptoasset firms may require FCA authorisation, even where an equivalent overseas traditional finance firm could rely on the overseas persons exclusion (OPE) and remain outside the UK's regulatory perimeter.

This means overseas crypto firms should start revisiting assumptions that operating from outside the UK will be sufficient to avoid UK authorisation requirements.

Under recently introduced regulations, cryptoasset activities will capture many of the core services offered by crypto exchanges, brokers, custodians and staking providers and will form the backbone of the UK's new cryptoasset authorisation regime.

A person that carries on a regulated activity by way of business in the UK must hold appropriate authorisation from the Financial Conduct Authority (FCA).

Application of overseas persons exclusion

Traditional financial services firms are generally able to rely on the OPE, which enables certain regulated activities to be carried on without FCA authorisation.

In broad terms, the OPE may be available where:

• the overseas firm enters into transactions in investments with, or through, a UK authorised or exempt person (whether acting as principal or agent); or
• the activity is carried on as a result of a genuine reverse solicitation by the UK client.

The FCA has previously indicated that cryptoasset regulation should, so far as possible, reflect the principle of "same risk, same regulatory outcome". Against that backdrop, it would be reasonable to expect cryptoasset firms and traditional financial services firms to be treated consistently and on a ‘level playing field’ in relation to the availability of the OPE.

However, the new cryptoasset regime takes a different view.

Rather than extending the OPE to regulated activities involving qualifying cryptoassets, the legislation introduces specific deeming provisions which can treat certain overseas cryptoasset activities as being carried on in the UK. As a result, the jurisdictional analysis for cryptoasset firms may produce materially different outcomes from those that apply to traditional financial services firms conducting analogous activities – as set out in a recent FCA consultation (97-page / 1.07MB PDF).

Considerations for overseas firms

The practical effect is that overseas cryptoasset firms that would otherwise not consider themselves to be ‘in the UK’ may now be brought within the UK’s cryptoasset regulatory perimeter, even where the equivalent traditional finance activity would not. Those firms that are deemed to be carrying on a regulated activity by way of business in the UK will need to obtain FCA authorisation to carry out that activity from October 2027, unless another exemption is available.

A key gateway question is whether the relevant activity involves a "UK consumer". In broad terms, this means an individual located in the UK who is acting outside their trade, business or profession. For many overseas firms, this will be the critical perimeter question because the deeming provisions generally do not apply where no UK consumer is involved.

As a result, overseas firms operating exclusively on a business-to-business basis may in many cases face a materially lower risk of falling within the UK cryptoasset perimeter.

However, where a UK consumer is present within a chain of cryptoasset services (dealing/ arranging/ operating a qualifying cryptoasset trading platform, QCATP), the analysis becomes more complex, and is materially different to what firms might expect based on the traditional UK financial services perimeter.

For example, a crypto exchange established outside the UK that permits UK consumers, whether or not it actively solicits those consumers, to buy or sell qualifying cryptoassets may be treated as carrying on a regulated activity in the UK, notwithstanding that the exchange itself, its systems and its personnel are all located overseas.

This is a materially broader outcome than many firms – particularly those which previously relied on the reverse solicitation element of the OPE to engage with UK customers – would expect based on traditional financial services perimeter concepts.

Similarly, an overseas firm dealing in qualifying cryptoassets from outside the UK may still be treated as carrying on a regulated activity in the UK, depending on matters including: whether a UK consumer forms part of the distribution chain; whether authorised intermediaries sit between the firm and that consumer; and whether those intermediaries each hold the necessary permissions.

This means even an overseas firm dealing only with a UK-authorised institutional client could require UK authorisation in certain circumstances, which is a markedly different outcome from the traditional financial services perimeter and requires firms to look more closely and deeply into their distribution chains.

Firms considering UK market access models should therefore assess carefully whether their distribution arrangements risk falling within the UK perimeter.

Similarly, overseas cryptoasset firms that are staking or safeguarding qualifying cryptoassets geographically outside the UK but at the direction of a UK consumer will be deemed to be within the regulatory perimeter, subject to any other exclusions which might apply. However, an overseas cryptoasset firm will not be captured by the regulatory perimeter where the firm’s activities are carried on at the direction of an FCA-authorised firm with a relevant authorisation.

The position for issuers of qualifying stablecoins is different and, in some respects, potentially more far-reaching. Unlike many of the other cryptoasset activities, the relevant test does not depend on whether a UK consumer is involved. Instead, the analysis focuses on the location of the issuer and persons acting on its behalf.

Firms involved in stablecoin issuance should therefore undertake a separate jurisdictional assessment rather than assuming that conclusions reached for exchange, brokerage, staking or custody activities will automatically apply to stablecoin issuance.

Added complexity at the margins

The complexity of the UK’s cryptoasset regulatory perimeter is demonstrated by different approaches to ‘specified investment cryptoassets’ – ones which are captured within the UK’s existing regulatory perimeter. For these types of assets, the OPE will continue to apply.

However, the deeming provisions which apply to the safeguarding of qualifying cryptoassets will also apply to some specified investment cryptoassets, such as those which represent securities.

The resulting perimeter analysis is significantly more complex than a simple question of where a firm is established or where its technology is located. Different rules may apply depending on the nature of the cryptoasset involved, the activity being undertaken, the status of the customer, the distribution chain, and the firm's operating model. Firms cannot assume that traditional financial services perimeter concepts will translate directly into the cryptoasset context.

With final FCA guidance on the cryptoasset perimeter due in September, overseas firms should commence their analysis now. This should include not only whether their activities are brought within the UK regulatory perimeter but also the most appropriate UK market access model, including whether FCA authorisation may be available through a branch structure or would require a UK-incorporated authorised entity.