By CRYPTOVERSE Legal Consultancy
A UK crypto broker or over-the-counter trading desk needs to assess its FCA requirements by examining how it conducts transactions.
The key questions are whether the firm trades as the customer’s counterparty, executes on the customer’s behalf, transmits instructions or facilitates transactions between other parties. Safeguarding assets, operating a trading platform or offering additional services may require further analysis.
“Broker”, “OTC desk” and “liquidity provider” are commercial descriptions. They do not determine the regulatory outcome.
This article explains how to assess the proposed permissions and prepare an application that accurately reflects the business.
1. Establish the Application Route
The expanded crypto regime commences on 25 October 2027. Its application gateway opened on 30 September 2026, with the relevant application period currently closing on 28 February 2027.
Existing cryptoasset MLR registration does not automatically convert into FSMA authorisation. An existing FSMA-authorised firm needs to apply to vary its permissions where appropriate. FCA
For application preparation, distinguish:
- Current services and obligations.
- Services proposed under the expanded regime.
- Existing permissions.
- New permissions or limitations required.
- Changes to customer contracts and transaction flows.
- Any relevant transitional arrangements.
The analysis should also identify the assets traded. Qualifying cryptoassets and crypto-linked financial instruments should not be treated as interchangeable.
2. Distinguish Principal Dealing, Agency Dealing and Arranging
The relevant Regulated Activities Order provisions include:
| Activity | Provision | Central question |
| Dealing as principal | Article 9T | Does the firm transact on its own account? |
| Dealing as agent | Article 9W | Does it enter transactions on another person’s behalf? |
| Arranging transactions | Article 9Y(1) | Does it bring about a transaction? |
| Making arrangements with a view to transactions | Article 9Y(2) | Does it facilitate transactions through relevant arrangements? |
PERG 18.8 explains these activities and their broad scope. Authorisation depends on the full assessment, including the business test, territorial scope and applicable exclusions. Receiving and transmitting instructions can amount to arranging; authority to transact for another person requires consideration of agency dealing. Asset control is not necessary for arranging. PERG 18.8 Activity: intermediary activities
A firm can perform more than one activity. Assess each service and transaction structure separately.
3. Examine a Principal OTC Model
Consider an illustrative desk that quotes a price and becomes the customer’s contractual counterparty. It separately obtains assets or hedges its exposure with a liquidity provider.
For practical analysis, establish:
- Who buys from and sells to the customer.
- When the customer’s contract becomes binding.
- Whether the desk uses inventory.
- How the external transaction relates to the customer trade.
- Who bears settlement failure.
- How the desk earns its revenue.
A rapid offsetting transaction does not, by itself, settle the firm’s regulatory capacity.
Prepare an example trade record showing the contracts, timestamps, prices, counterparties and settlement obligations. Compare that evidence with the customer terms and application description.
4. Examine an Agency Brokerage Model
An agency model should be assessed through the authority granted to the firm and the contracts it enters.
Useful questions include:
- Can the broker bind the customer?
- Who is the customer’s transaction counterparty?
- Does the broker select the execution venue?
- What discretion does it exercise?
- How are fees charged?
- Who handles failed execution or settlement?
Calling a service “agency brokerage” should be supported by the legal agreements and operational process.
Management should also understand whether the firm acts in different capacities across products or customers. Those differences need clear documentation and customer communication.
5. Examine Introductions and Order Transmission
Introducer and order-transmission models require careful assessment.
For preparation, map what happens after the customer expresses interest:
- Does the firm merely provide information?
- Does it select or introduce a counterparty?
- Does it transmit an instruction?
- Does it negotiate terms?
- Does it help complete settlement?
- Does it receive transaction-related remuneration?
Relevant exclusions must be checked against the complete facts. Avoid assuming that “introducer only” or “we never hold assets” resolves the permission question.
Keep the proposed business within the boundaries described in the legal assessment. If staff begin negotiating or handling instructions, reassess the model.
6. Treat Matched Principal Trading Precisely
Matched principal trading has specific characteristics. The FCA’s guidance describes interposition between buyer and seller without market risk during execution, simultaneous execution of both sides and remuneration limited to a disclosed commission, fee or charge. PERG 18.8 Activity: intermediary activities
For internal review, examine:
- Whether both sides are genuinely simultaneous.
- Any period of exposure.
- Differences in quantity or price.
- Inventory use.
- Failed-leg handling.
- The source of remuneration.
Do not use “matched principal” as shorthand for every back-to-back OTC transaction.
The proposed permission, limitations and operating controls should follow the actual model.
7. Assess Territorial Scope and Institutional Business
An overseas OTC desk needs a separate territorial assessment.
PERG 18.3 starts with ordinary UK territorial principles, then considers the deeming provisions in FSMA section 418. Certain overseas dealing and arranging involving UK consumers can be brought within scope.
Under section 418(6C), the role of an interposed authorised principal dealer or QCATP operator matters. An agency broker or arranger alone does not produce the same result. Institutional-only dealings also require examination of any underlying consumer chain. handbook.fca.org.uk
For practical preparation, identify the customer, underlying client where relevant, counterparties, locations and capacities in which each intermediary acts.
The territorial assessment and customer classification should be recorded separately.
8. Check Additional Services and Permissions
The dealing analysis should be coordinated with other parts of the business.
| Feature | Further assessment |
| Customer wallets or withdrawal control | Safeguarding or arranging safeguarding |
| Multiple third-party trading interests | Potential trading platform activity |
| Staking arrangements | Relevant staking activity |
| Lending or yield structures | Underlying transactions and permissions |
| Derivatives or security tokens | Relevant existing regulated activities |
| UK customer marketing | Financial promotion requirements |
The purpose is to identify the full operating model. A principal-dealing permission should not be treated as a complete answer for every service offered by the desk.
9. Prepare Pricing and Execution Controls
The final activity rules in PS26/11, including CRYPTO 5, address execution, order handling and pre-trade disclosures. Their application depends on the firm’s role and includes qualifications and exceptions.
For example, CRYPTO 5.5.1R addresses disclosure of principal or agent capacity. The principal price-disclosure provisions address executable prices, validity periods and charges where applicable. fca.org.uk
For practical implementation, document:
- Quote generation and approval.
- Price sources.
- Quote expiry.
- Fees and spreads.
- Order acceptance.
- Rejection or requoting.
- Exceptional circumstances.
- Relevant execution arrangements.
Test whether customer messages and system behaviour match those procedures.
10. Map Settlement and Asset Control
Settlement risk can be significant in OTC business.
A suggested transaction map should identify:
- Payment and delivery sequence.
- Bank accounts and wallets.
- Account ownership.
- Third-party payments.
- Signing authority.
- Settlement instructions.
- Reconciliation.
- Failed settlement procedures.
For example, determine what happens if fiat is received but crypto delivery fails, or an external counterparty delivers less than the agreed amount.
Assess any safeguarding implications rather than relying on the short duration for which assets are held.
11. Connect the Model to Financial Resources and Governance
The final prudential framework differentiates between principal dealing and agency or arranging permissions. Under CRYPTOPRU 4.2.1R, the permanent minimum is £750,000 for principal dealing and £75,000 for agency dealing or arranging. These are components of the wider assessment: the own funds requirement also compares fixed overheads and K-factor requirements. fca.org.uk
For management planning, connect the model with:
- Inventory and exposure limits.
- Liquidity requirements.
- Counterparty concentration.
- Funding assumptions.
- Trade approval authority.
- Exception handling.
- Conflicts and remuneration.
A desk’s revenue model should be consistent with its legal capacity, customer disclosures and financial forecasts.
12. Assemble the Application Evidence
A practical pack may include:
- Activity and permission analysis.
- Token and instrument assessment.
- Territorial analysis.
- Regulatory business plan.
- Customer agreements.
- Representative trade examples.
- Transaction and settlement flows.
- Pricing and execution procedures.
- Counterparty due diligence.
- Financial crime controls.
- Governance and responsibility documents.
- Financial forecasts and prudential calculations.
- Testing and remediation records.
Review the pack for consistency.
If the application describes an agent, customer contracts should not quietly make the applicant the principal counterparty. If the model assumes no inventory, the trading process should support that assumption.
How CRYPTOVERSE Can Support Your Broker or OTC Application
CRYPTOVERSE is a specialist legal and regulatory firm for UK FCA cryptoasset authorisation support.
We can help assess dealing and arranging activities, review customer and counterparty contracts, map settlement arrangements and prepare supporting application documents.
Our approach connects the permission analysis with the desk’s actual transactions, resources and controls.
Contact CRYPTOVERSE to discuss FCA authorisation support for your crypto brokerage or OTC business.
FAQs
1. Do UK crypto brokers need FCA authorisation?
UK crypto brokers must assess whether their activities fall within the regulated activities under the Financial Services and Markets Act 2000 (FSMA). Depending on their business model, they may need permission for dealing as principal, dealing as agent or arranging transactions. The required permissions depend on the services provided and the applicable regulatory requirements.
2. What is the difference between dealing as principal and dealing as agent?
Dealing as principal means a firm enters into transactions as the counterparty, trading on its own account. Dealing as agent means the firm enters into transactions on behalf of another person. The distinction depends on the contractual arrangements, authority and actual transaction structure rather than the firm’s commercial description.
3. Does an OTC crypto desk need FCA permission for arranging transactions?
An OTC crypto desk may require permission for arranging transactions if its activities bring about transactions or make arrangements with a view to transactions. Receiving and transmitting customer instructions can also fall within the arranging analysis. The exact requirements depend on the firm’s activities, transaction structure and applicable exclusions.
4. Does existing FCA or cryptoasset MLR registration cover the new crypto authorisation requirements?
No. Existing cryptoasset registration under the Money Laundering Regulations does not automatically provide FSMA authorisation. Firms must assess their activities against the expanded UK cryptoasset regulatory framework and apply for the relevant permissions where required. Existing FSMA-authorised firms may need to apply for a variation of permission.
5. What documents are required for an FCA crypto broker authorisation application?
An FCA application may require a regulatory business plan, activity and permission analysis, customer agreements, transaction flow diagrams, settlement procedures, financial forecasts, prudential calculations, governance documents, financial crime controls and counterparty due diligence records. The evidence should accurately reflect the firm’s actual operating model and proposed regulated activities.