We are moving, slowly but surely, towards FCA regulation of qualifying cryptoassets and the providers of various services in this sector. A few reminder headlines first:

• FCA is already offering and organising PASS meetings with prospective regulated firms.
• From the end of September 2026 commences a 5-month “gateway” period during which currently operational businesses can make application and thereby be permitted to remain in business while the applications are pending.
• Miss the “gateway” (closes 28 February 2027) and you will have to shut down operations while your application is pending.
• FCA regime comes fully into force on 25 October 2027.

The question which seems to concern most is where FCA is drawing the line between “Firm X” that clearly faces clients in dealing or arranging deals in cryptoassets and “Firm Y” that provides enabling tech and therefore thinks this is outside regulation.

What FCA has gestured is that Firm Y will fall within regulation if what it does or offers “adds value”. Perhaps not the most helpful of resolutions, and I can see there being a need for borderline Firms Y to be seeking legal advice as to what their models actually do and how this is achieved.

Two points to consider, in brief, which may assist:

(1)   The issue is not new, and has arisen before in TradFi situations. Mere conduits avoid regulation as deal-arrangers, for example, meaning that the myriad trade instructions passing via telecoms companies and ISPs every minute of the day do not make them liable to regulation provided that they do not interact with the traffic.  A more concrete example is the designer of a piece of software used in trading, where one would say he merely supplied this to a trading firm and the latter did the rest.  But what if the contract was SaaS, so that the creator of the app is also supporting its use, perhaps to the trading firm's customers, visibly so?  I sense that FCA expects there to be a great deal more of this in relation to crypto than in TradFi and is readying itself for the challenge of determining just how influential on the market such firms and their software will prove to be.

(2)   There is another point, though.  What if Firm Y were in the UK but its services were appended to those of overseas investment firms with no obligation to become FCA-regulated?  FCA likely wants somebody in the UK to be answerable to the rules for the welfare of UK clientele.

The issue is the subject of continuing debate, and we will need to see where it settles over the next few weeks.  But there is a logic to the position FCA is currently taking, and a few businesses who think they merely facilitate the tech needed for cryptoasset trading may find themselves required to commit further to the UK regulatory system than they had originally thought.