Regulation 42 Amendment of the Financial Promotion Order

in paragraph 4 (arranging deals in investments), after sub-paragraph (3) insert—

“(4)

This paragraph does not apply to the activity specified by paragraph 7C (qualifying cryptoasset staking)^f4.”;

in paragraph 6 (safeguarding and administering investments), after sub-paragraph (4) insert—

“(5)

This paragraph does not apply to an activity specified by paragraph 7A (safeguarding of qualifying cryptoassets and relevant specified investment cryptoassets).”;

after paragraph 7 (advising on investments) insert—

“Safeguarding of qualifying cryptoassets and relevant specified investment cryptoassets

7A

(1)

The following are controlled activities—

(a)

the safeguarding of a qualifying cryptoasset or a relevant specified investment cryptoasset (“the cryptoasset”) on behalf of another person (“A”);

(b)

arranging for a person to carry on that activity.

(2)

For the purposes of sub-paragraph (1)(a)—

(a)

a person (“C”) is to be regarded as safeguarding the cryptoasset if C has control of the cryptoasset through any means that would enable C to bring about a transfer of the benefit of the cryptoasset to another person, including to C;

(b)

“on behalf of another” includes where that other person, A, has—

(i)

both legal and beneficial title to the cryptoasset;

(ii)

the beneficial title only to the cryptoasset;

(iii)

subject to sub-paragraph (c), a right against C for the return of the cryptoasset;

(c)

subject to paragraph (d), paragraph (b)(iii) does not apply where A’s right against C for the cryptoasset arises in the following circumstances—

(i)

C received the cryptoasset from A under a title transfer cryptoasset collateral arrangement, or

(ii)

C acquired the cryptoasset from A under an agreement pursuant to which A contracted to buy back the cryptoasset from C;

(d)

paragraph (c) does not apply where A is—

(i)

a consumer, or

(ii)

specified, or of a description specified, in rules made by the FCA.

(3)

Rules made by virtue of sub-paragraph (2)(d)(ii) may—

(a)

specify a particular person or class of persons;

(b)

be limited so as to apply only to agreements or arrangements, or classes of agreements or arrangements, specified by the rules.

(4)

For the purposes of sub-paragraph (2)(a), the means by which C may have control of the cryptoasset include—

(a)

holding or storing of the means of access, or part of the means of access, to the cryptoasset;

(b)

appointing a person to hold or store the means of access, or part of the means of access, to the cryptoasset under an arrangement operated by C.

(5)

There are excluded from sub-paragraph (1)(a) activities which a person (“P”) carries on pursuant to arrangements—

(a)

which are operated by an authorised cryptoasset custodian (“C”), who is connected with P, in the course of carrying on the activity in sub-paragraph (1)(a), and

(b)

under which C undertakes to the person on whose behalf the cryptoasset is being safeguarded a responsibility in respect of that cryptoasset which is no less onerous than C would have undertaken if C were safeguarding the cryptoasset.

(6)

There are excluded from sub-paragraph (1)(b) arrangements pursuant to which introductions are made by a person (“P”) to an authorised cryptoasset custodian (“C”), with a view to C providing in the United Kingdom a service comprising an activity of the kind specified by sub-paragraph (1)(a), provided that—

(a)

C is not connected with P, and

(b)

P is not remunerated by C.

(7)

There are excluded from sub-paragraph (1) arrangements whereby a qualifying cryptoasset or a relevant specified investment cryptoasset is held temporarily to facilitate the settlement of a transaction.

(8)

A person (“P”) does not carry on the activity specified by sub-paragraph (1)(a) on behalf of another person (“A”), if A appoints P as their agent for the purposes of giving instructions to a third person (“C”), where C has undertaken directly to A the responsibility to safeguard the cryptoasset.

(9)

A person (“P”) does not carry on the activity specified by sub-paragraph (1)(a) on behalf of another person (“A”) unless P holds itself out as engaging in the business of providing a service in relation to the cryptoasset to A, or to a person acting on behalf of A.

(10)

There is excluded from sub-paragraph (1) any activity where the cryptoasset is, or is to be, safeguarded by a person (“A”), or a member of the same group as A, for the purpose of enabling or facilitating transactions by A, or a member of the same group as A, that would be within article 9T (dealing in qualifying cryptoassets as principal) of the Regulated Activities Order but for the operation of article 9V(2)(c).

(11)

For the purposes of this paragraph—

(a)

“authorised cryptoasset custodian” means an authorised person who has a Part 4A permission to carry on the regulated activity specified by article 9N(1)(a) (safeguarding of qualifying cryptoassets and relevant specified investment cryptoassets);

(b)

“consumer” means an individual who is acting for a purpose other than for any trade, business or profession carried on by that individual;

(c)

“relevant specified investment cryptoasset” has the meaning given by article 9N(5)(b) of the Regulated Activities Order (safeguarding of qualifying cryptoassets and relevant specified investment cryptoassets);

(d)

“title transfer cryptoasset collateral arrangement” means an agreement or arrangement between C and the person who would otherwise be regarded as safeguarding the cryptoasset on behalf of another person (“A”), where—

(i)

the purpose of the agreement or arrangement with A is to secure or otherwise guarantee financial obligations owed by A to C, and

(ii)

A transfers legal and beneficial ownership of the cryptoasset to C on terms that C must transfer legal and beneficial ownership of the cryptoasset, or its equivalent, to A when the financial obligations referred to in sub-paragraph (i) are discharged;

(e)

references to a cryptoasset, qualifying cryptoasset or a relevant specified investment cryptoasset include the means of access to that cryptoasset;

(f)

references to the “means of access” to a cryptoasset include a private cryptographic key to that cryptoasset;

(g)

an authorised cryptoasset custodian is connected with a person if they are a member of the same group as that person.

Operating a qualifying cryptoasset trading platform

7B

(1)

The operation of a qualifying cryptoasset trading platform is a controlled activity.

(2)

In this paragraph, “qualifying cryptoasset trading platform” has the meaning given by article 3 (interpretation) of the Regulated Activities Order.

Qualifying cryptoasset staking

7C

(1)

Making arrangements on behalf of another person (whether as principal or agent) for qualifying cryptoasset staking is a controlled activity.

(2)

There is excluded from sub-paragraph (1) the provision of services solely for the purpose of introducing a person to an authorised person with a Part 4A permission to carry on the regulated activity specified by article 9Z6.

(3)

A person does not carry on the activity specified by sub-paragraph (1) merely by providing means by which one party to an arrangement, or potential arrangement, is able to communicate with other such parties.

(4)

There is excluded from sub-paragraph (1) a technical service provided by a person (“P”) where—

(a)

the service allows another person to participate in qualifying cryptoasset staking, as defined by article 9Z6, including by the operation of a validator node for that staking, and

(b)

P does not hold itself out as offering qualifying cryptoasset staking to the public.

(5)

In this paragraph—

• “blockchain validation” means the validation of transactions on—

  1. (a)

     a blockchain, or

  2. (b)

     a network that uses distributed ledger technology or other similar technology,

  and includes proof of stake distributed ledger technology consensus mechanisms;

• “qualifying cryptoasset staking” means the use of a qualifying cryptoasset in blockchain validation.”.