By CRYPTOVERSE Legal Consultancy
Everyone benefits—except the decision is no longer independent
A crypto group is preparing its UK FCA authorisation application. So the question arises that do you need a UK crypto licence?
Its proposed platform will list a token issued by a sister company. Another group company will provide liquidity. The founder holds a substantial personal allocation of the token, and the commercial director’s bonus depends on trading revenue.
The listing committee approves the token. Its minutes state that the group relationship was disclosed.
During an internal review, someone asks:
“Who assessed whether the token should be admitted without being influenced by the group’s financial interests?”
Nobody has a clear answer.
The relationship was recorded, but the decision-making process remained exposed to conflicting incentives.
For FCA authorisation preparation, that distinction matters. A firm should be able to explain how it identifies conflicts, controls their effects and verifies that the controls work.
What is a conflict of interest in a crypto business?
A conflict arises when competing interests could influence a decision or service in a way that damages a client’s interests. It may involve the firm, its employees, connected companies or competing clients.
Examples include routing orders towards a provider that pays the firm, selecting a related custodian without adequate scrutiny, or allowing employees to trade using confidential customer information.
The FCA’s final policy in PS26/13 applies the relevant SYSC organisational framework to qualifying cryptoasset firms, including SYSC 10 on conflicts of interest. Precise application depends on firm classification and the relevant application provisions. fca.org.uk
These requirements should be assessed alongside activity-specific crypto rules and their commencement provisions.
Start with interests, incentives and influence
A generic policy declaring that employees must “act fairly” provides little insight into how the business operates.
For practical preparation, we recommend examining three questions:
- Who benefits financially from the decision?
- Who can influence the decision or access relevant information?
- Whose interests could be harmed?
Apply those questions across the proposed operating model.
| Area | Potential conflict |
| Order execution | The firm earns more by routing orders to one venue |
| Principal dealing | The firm’s trading interests compete with customer execution |
| Token listings | A founder, shareholder or group company benefits from admission |
| Custody | Commercial pressure influences provider selection or withdrawal decisions |
| Staking | Provider selection favours group revenue over customer outcomes |
| Staff trading | Employees use confidential information for personal benefit |
| Complaints | The investigator has an interest in defending the original decision |
Under SYSC 10.1.3R, the relevant framework requires appropriate steps to identify and prevent or manage conflicts. SYSC 10.1.4R identifies circumstances firms must consider, including financial benefit at a client’s expense, competing interests and incentives to favour another client.
The assessment should reflect actual behaviour and authority, including informal influence.
Trading conflicts require more than a disclosure
A business handling customer orders while trading for its own account should examine how information, personnel and incentives interact for UK FCA Crypto proprietary trading authorisation.
For practical review, ask:
- Can proprietary traders see pending customer orders?
- Can they influence execution timing or allocation?
- Are customer-facing employees rewarded for directing business towards the firm’s inventory?
- Who reviews execution quality?
- Can management override controls without independent scrutiny?
The FCA’s final policy expects functional separation between proprietary trading and client order execution, with additional measures where separation alone is insufficient. It also considers intermediaries engaging in payment for order flow unlikely to meet relevant requirements when serving retail or professional clients.
A firm should examine the substance of payments and arrangements. Calling a routing payment a “partnership fee” does not resolve the underlying incentive.
Trading platforms face specific restrictions
Under the final CRYPTO 6.6.1R–6.6.2R, an operator cannot execute against proprietary capital on its own UK qualifying cryptoasset trading platform, except for permitted matched principal trading under the specified conditions. The operator therefore cannot act as a market maker on that platform.
CRYPTO 6.6.6R addresses appropriately permitted principal trading outside the platform, including clear capacity disclosures and effective conflict management.
A conflicts policy cannot make a prohibited activity permissible.
Related entities require separate assessment. Moving an activity into another group company does not, by itself, establish adequate independence or regulatory compliance.
Protect token admission decisions from commercial pressure
Token selection can create strong incentives.
A listing may generate fees, attract customers or increase the value of holdings owned by founders and connected parties.
Our recommended approach is to document both the admission criteria and the independence of the decision process.
Consider:
- Interests held by directors, employees and connected companies.
- Payments or other benefits associated with admission.
- Relationships with issuers and liquidity providers.
- Who prepares due diligence and who challenges it.
- When a participant must withdraw from a decision.
- Whether an unconflicted decision-maker can reject the proposal.
Commercial teams can contribute information. Their involvement should not allow revenue expectations to determine the outcome without appropriate scrutiny.
Record the evidence considered, concerns raised and reasons for the decision. A declaration of interest is most useful when it changes how the decision is handled.
Examine conflicts in custody arrangements
Custody creates decisions about access, security, providers and customer assets.
Potential conflicts may arise where:
- The firm favours a group custodian despite unresolved weaknesses.
- Revenue considerations discourage timely customer withdrawals.
- Staff responsible for custody also benefit from another product using those assets.
- A commercially important customer receives preferential treatment.
- An operational incident is downplayed to protect the firm’s reputation.
For practical preparation, we recommend mapping who can authorise asset movements, change custody arrangements and approve exceptions.
Connect the conflicts assessment with the customer contracts, permissions analysis and safeguarding controls. Those documents should describe a consistent relationship between the firm’s authority and the customer’s rights.
Consent or disclosure should not be treated as a substitute for satisfying the applicable custody requirements.
Look beyond the applicant to the group
A UK entity may depend on its parent for technology, funding, personnel and commercial strategy for overseas FCA crypto Authorisation Company.
That creates potential tension between the applicant’s responsibilities and group objectives.
For example, a parent might require the UK company to use a group execution venue, retain a particular custodian or promote a group product.
We recommend reviewing:
- Shared directors and committee memberships.
- Group remuneration arrangements.
- Related-party service contracts.
- Access to customer and trading information.
- Budget approval and compliance resources.
- The UK entity’s authority to reject or change arrangements.
Separate incorporation should be supported by workable governance. The applicant needs a credible explanation of how its decision-makers can fulfil their responsibilities when group interests diverge.
Manage employee trading and confidential information
Personal holdings can affect professional judgment for UK Crypto Staking FCA Authorisation.
For practical implementation, consider a proportionate framework covering declarations, restricted assets, pre-clearance where appropriate, access to sensitive information and review of suspected breaches.
The FCA’s final policy introduces personal account dealing arrangements for crypto intermediaries, supported by compliance records.
Controls should account for how employees actually transact. A policy limited to one exchange account may miss relevant activity through other platforms or wallets.
Access restrictions should also cover contractors and group personnel where their roles create similar risks.
Use disclosure carefully
Disclosure can help a customer understand a residual conflict. It should explain the relevant relationship, its potential effect and the measures taken.
Where SYSC 10.1.9AR applies, disclosure is a last resort when organisational and administrative arrangements are insufficient to prevent client damage with reasonable confidence.
For practical drafting, avoid broad statements such as:
“We may have interests that conflict with yours.”
Explain the specific issue in language customers can understand.
Before drafting the disclosure, determine whether stronger controls are possible or whether the arrangement should proceed at all.
Build an actionable conflicts register
A useful register connects each conflict to a decision and a control.
We recommend recording:
| Field | Purpose |
| Conflict and affected activity | Explain the competing interests |
| Persons and entities involved | Identify influence and financial benefit |
| Potential customer harm | Establish what the controls must address |
| Control owner | Assign accountability |
| Preventive measures | Describe separation, restrictions or independent review |
| Residual risk | Assess what remains after controls |
| Approval or escalation | Record the decision and authority |
| Review evidence | Show whether the measures remain effective |
The register should evolve when the firm introduces products, changes providers or restructures its group.
Test selected controls in practice. For example, review whether access restrictions prevent a proprietary trader from viewing pending customer orders, or whether a conflicted committee member actually withdraws from the relevant decision.
Returning to the opening scenario
The group identifies the founder’s token holdings, the commercial incentives and the related liquidity provider for regulatory compliance advisory.
It introduces an unconflicted admission review, restricts sensitive information and records how the proposal is assessed against objective criteria. It separately examines whether the liquidity arrangement is permissible and adequately controlled.
The outcome may be approval with safeguards, deferral or rejection.
The firm can now explain how it reached that outcome and whose interests the process protects.
How CRYPTOVERSE can support your preparation
CRYPTOVERSE is a specialist legal and regulatory firm for UK FCA cryptoasset authorisation support.
We can help assess conflicts across your trading, custody, token selection, remuneration and group arrangements, and connect the findings with your permissions, governance and application evidence.
Contact CRYPTOVERSE to review whether your proposed UK crypto operating model identifies and controls its material conflicts of interest.
FAQs
1. Are group relationships automatically prohibited?
No. Each arrangement needs assessment against applicable rules, customer interests and the effectiveness of controls.
2. Does disclosing a conflict solve it?
Disclosure alone may be insufficient. Some arrangements require stronger controls, and specific prohibitions cannot be overcome through disclosure.
3. Can a small firm use proportionate arrangements?
Yes, but the arrangements must address its actual risks. Limited staffing can make independence and access controls harder to achieve.
4. What should an FCA crypto applicant prepare?
A business-specific assessment, policy, register, governance arrangements, relevant controls and evidence showing how conflicts are handled in practice.
5. Does a conflicts policy apply to the whole group or just the UK entity?
The conflicts framework applies to the authorised UK firm, but that firm’s conflicts often come from its group relationships.