By CRYPTOVERSE Legal Consultancy
A crypto lending or yield product needs a regulatory assessment of its underlying transactions, customer rights and asset flows.
Descriptions such as “earn”, “flexible savings”, “crypto loan” or “yield account” do not determine the permissions required. The assessment should establish who receives the assets, how they are used, who owes the customer a return and which entity controls repayment.
The FCA expressly explains that qualifying cryptoasset lending and borrowing are not distinct regulated activities. They can involve dealing, arranging and safeguarding activities, depending on the structure. handbook.fca.org.uk
This article explains how to assess the model and prepare it for an FCA authorisation application.
1. Start With the Transactions Behind the Product
Before selecting permissions, describe the product in legal and operational terms.
Identify:
- What the customer transfers.
- Who receives it.
- Whether ownership changes.
- How the assets are deployed.
- What the customer receives in return.
- How yield arises.
- Who bears losses.
- How the arrangement ends.
For example, a customer may transfer cryptoassets to a company that deploys them with other counterparties and promises to return equivalent assets. Another model may connect the customer directly with a borrower.
Those arrangements require separate analysis even if both are marketed as “crypto lending”.
2. Assess Dealing and Arranging Activities
PERG 18.9.1G explains that disposal and reacquisition of qualifying cryptoassets can constitute deals because buying and selling include acquisition or disposal for valuable consideration. Cryptoasset payments of yield or interest can also involve dealing.
The permissions depend on whether the person acts as principal, agent or arranger. Business, territorial and exclusion tests remain relevant. handbook.fca.org.uk
A practical assessment should trace each transaction separately.
| Transaction stage | Question to assess |
| Initial transfer | Who acquires or receives the cryptoassets? |
| Deployment | Who enters the downstream transaction? |
| Intermediation | Does another entity transmit instructions or facilitate the deal? |
| Return | Who transfers the same or equivalent assets back? |
| Yield payment | Which assets are paid, by whom and on what basis? |
Document the conclusions and assumptions before preparing the application forms.
3. Distinguish Cryptoasset Transactions From Credit
A crypto product described as a loan should not automatically be classified as consumer credit.
PERG 18.9.2G distinguishes deals involving cryptoasset disposal and reacquisition from the provision of credit. The FCA nevertheless emphasises that the precise legal and commercial structure and parties determine the outcome. Margin-style arrangements may also involve other specified investments, including derivatives.
A cash loan secured by cryptoassets therefore needs its own assessment.
For practical review, establish the currency or asset advanced, repayment obligation, borrower status, security arrangement and any relevant exemptions. Avoid extending conclusions about one cryptoasset model to every form of secured lending.
4. Explain How Yield Is Generated
A useful product assessment separates the customer’s promised return from the activity intended to fund it.
Possible sources may include:
- Counterparty payments.
- Trading.
- Blockchain validation.
- Liquidity provision.
- Promotional subsidies.
- Other investment arrangements.
For each source, identify the responsible entity, contracts, exposures and assumptions.
If several strategies are used, explain who chooses them and what limits apply. Management should understand how a change in strategy affects the permission analysis and customer disclosures.
A fixed customer rate does not establish a fixed or reliable underlying income stream.
5. Examine Ownership and Customer Claims
The application should explain the legal consequences of transferring assets.
Questions include:
- Does the customer retain a beneficial interest?
- Does ownership pass to the firm?
- Is the obligation to return particular assets or an equivalent quantity?
- Can assets be transferred onwards?
- What rights arise on default or insolvency?
- What restrictions apply to withdrawal?
Ownership transfer does not, by itself, resolve safeguarding. PERG 18.6.1G explains that the activity can arise where a firm acts on another’s behalf, has sufficient control and the customer has a right to return. Specific non-consumer arrangements and exclusions require separate assessment.
Customer contracts and operational records should support the same legal position.
6. Assess Collateral and Liquidation
Where customers provide collateral, document its treatment throughout the arrangement.
A practical review should cover:
- Accepted assets.
- Valuation sources.
- Exposure limits.
- Margin triggers.
- Additional collateral.
- Liquidation authority.
- Execution arrangements.
- Surplus return.
- Residual shortfalls.
Test a rapid price decline, delayed network transfer and failure of a valuation source.
The procedure should explain who can act, what the customer is told and how decisions are recorded. Automated liquidation also needs examination of configuration, access and exception handling.
7. Apply the Relevant Retail Conduct Requirements
The final rules in CRYPTO 9, published with PS26/11, address qualifying cryptoasset lending and borrowing services.
CRYPTO 9.3.1R requires retail key terms and express prior consent before the customer is bound or receives the service. Related terms cover matters including duration, charges, access, ownership and safeguarding. CRYPTO 9.2.10R addresses risk information, while CRYPTO 9.9 covers client reporting.
For implementation, map the customer journey:
- Information presented.
- Terms supplied.
- Instruction and consent captured.
- Asset transfer.
- Ongoing reporting.
- Exit or repayment.
Record document versions and test whether consent evidence can be retrieved.
8. Make Risk Information Specific
For practical drafting, explain the risks created by the particular model.
These may include:
- Borrower default.
- Counterparty concentration.
- Loss of access to assets.
- Withdrawal delays.
- Market movements.
- Collateral liquidation.
- Smart-contract failure.
- Provider disruption.
- Insolvency.
Use explanations that connect the risk to the customer’s rights for corporate structuring services for crypto and Web3 businesses.
For example, distinguish a right to request withdrawal from the firm’s ability to recover assets deployed elsewhere. If the product promises rapid access, test how that promise would be fulfilled during stress.
Review claims such as “savings”, “protected”, “guaranteed” or “low risk” against the actual arrangement.
9. Assess Overseas and DeFi Models Carefully
An overseas provider needs a territorial assessment alongside its activity analysis.
PERG 18.3 requires ordinary UK territorial analysis followed, where relevant, by the section 418 deeming provisions. Intermediary capacity and underlying UK consumer relationships can affect the outcome.
For a DeFi-connected product, identify the people and entities controlling:
- Customer access.
- Product parameters.
- Asset deployment.
- Smart-contract administration.
- Fees.
- Withdrawal processes.
“Decentralised” should be supported by the actual allocation of control. Assess any identifiable business’s role on its facts.
10. Prepare Financial and Operational Controls
A suggested control framework should address:
- Counterparty approval.
- Exposure limits.
- Concentration.
- Liquidity.
- Valuation.
- Reconciliation.
- Exceptions.
- Recovery.
- Financial crime.
- Management reporting.
For financial planning, distinguish customer assets, repayment obligations, expected income and the firm’s own resources.
Model adverse scenarios involving reduced income, defaults, increased withdrawals and delayed recovery. Identify management actions and the evidence supporting their feasibility.
Promises of reimbursement or guaranteed returns should be included in the legal and financial assessment.
11. Build the Application Evidence
The expanded regime starts on 25 October 2027. The application gateway is open, and existing MLR registration does not automatically confer FSMA authorisation for regulatory compliance advisory services.
A practical evidence pack may include:
| Evidence | Purpose |
| Product and permission analysis | Explain the underlying activities |
| Contract review | Establish customer and counterparty rights |
| Asset and transaction flows | Identify entities and control |
| Yield methodology | Support return assumptions |
| Counterparty assessments | Explain selection and exposure management |
| Collateral procedures | Support margin and liquidation arrangements |
| Disclosures and consent records | Evidence the customer journey |
| Financial forecasts | Assess obligations and resources |
| Governance records | Allocate decisions and oversight |
| Testing and remediation | Demonstrate implementation status |
Check the application against the actual product.
If the business plan describes customers retaining protected assets while the contract transfers ownership and permits onward deployment, resolve that inconsistency before submission.
How CRYPTOVERSE Can Support Your Lending or Yield Application
CRYPTOVERSE is a specialist legal and regulatory firm for UK FCA cryptoasset authorisation support for virtual asset lending and borrowing services.
We can help analyse product structures, assess permissions, review customer rights and prepare supporting legal and regulatory documentation.
Our approach connects the permission analysis with asset deployment, yield generation, collateral and repayment arrangements.
Contact CRYPTOVERSE to discuss FCA authorisation support for your crypto lending, borrowing or yield business.
FAQs
1. Is there a standalone FCA crypto lending permission?
The FCA explains that qualifying cryptoasset lending and borrowing are addressed through underlying regulated activities, rather than separate lending and borrowing activities.
2. Does a yield product require staking permission?
Only a relevant staking arrangement supports that analysis. Establish how the assets are used and how returns arise.
3. Does transferring ownership remove safeguarding concerns?
Not automatically. Assess control, the customer’s rights and applicable conditions or exclusions.
4. Is a crypto-backed cash loan the same as cryptoasset lending?
No assumption should be made. The cash-credit structure requires separate analysis.
5. Does calling the service DeFi remove the need for assessment?
No. Identify the actual activities, responsible persons, control and territorial connections.