Does Proprietary Crypto Trading Require FCA Authorisation? A Business Model Assessment

By CRYPTOVERSE Legal Consultancy

Proprietary crypto trading can require FCA authorisation, but trading with your own capital does not automatically make the activity regulated or exempt. The assessment depends on the assets traded, the firm’s actual activities, whether those activities constitute a business, its UK connection and any available exclusions.

For founders, trading firms and corporate treasury teams, the practical question is therefore: what does your particular trading model require?

This article explains how to approach that assessment under the UK’s expanded cryptoasset regime and what evidence to prepare before deciding whether to apply.

1. Distinguish today’s requirements from the new regime

The expanded UK cryptoasset authorisation regime is scheduled to commence on 25 October 2027. The FCA application gateway opened on 30 September 2026, with the relevant application period ending on 28 February 2027. Firms should assess their intended activities before deciding whether an application is necessary.

This article principally addresses the expanded regime. A business should separately assess requirements already applicable to its existing activities.

“Proprietary trading” is a commercial description. It does not identify a single FCA permission or settle the regulatory analysis.

2. Define precisely what “proprietary” means

Begin by documenting who owns the trading capital, who bears losses and what obligations the firm owes to others.

A useful assessment distinguishes between:

These are assessment questions, rather than automatic permission outcomes.

For example, a company buying cryptoassets for its treasury and a dealer maintaining inventory to fulfil customer orders may both describe their trades as “own account”. Their operating arrangements are materially different.

3. Classify the assets and instruments first

Prepare an inventory of everything the firm trades, including spot tokens, tokenised securities, derivatives and exchange-traded products.

The FCA distinguishes qualifying cryptoassets from specified investment cryptoassets and other investment products. Consequently, different regulatory provisions can apply within the same trading strategy.

The inventory should record:

• The asset or instrument and its legal rights.
• Whether the transaction involves spot ownership or contractual exposure.
• The issuer, counterparty and execution venue.
• Settlement arrangements.
• The classification conclusion and supporting reasoning.

A strategy described internally as “Bitcoin trading” could involve spot purchases, futures, options or several instruments together. The legal assessment needs that detail.

4. Assess the narrower cryptoasset business test

The FCA explains that the new cryptoasset business test asks whether the person carries on the business of engaging in the relevant activity. It considers continuity, commercial character, scale and the activity’s relationship to the person’s wider business.

Merely participating in cryptoasset markets, or periodically investing on one’s own account, does not itself establish that test. The assessment is activity-specific and depends on substance.

For practical purposes, assemble evidence showing:

• Why the trading operation exists.
• How it earns revenue.
• Whether it has dedicated staff, systems and budgets.
• How regularly it trades.
• Its importance to the company’s overall operations.
• Whether it provides a service or undertaking to counterparties.

There is no single trading-volume figure that answers all these questions.

A board-approved treasury policy can help explain an incidental investment activity. A dedicated trading business should explain its commercial model with equal precision.

5. Examine dealing as principal and the holding-out exclusion

Buying and selling qualifying cryptoassets on own account can fall within the description of dealing as principal.

However, article 9U provides an exclusion concerning absence of holding out. Broadly, it examines whether a person presents itself as continuously willing to buy and sell, engaged in a dealing business, or regularly soliciting the public to deal. Both statements and conduct matter.

The FCA also identifies a conditional exclusion for principal transactions conducted only with members of the same group.

These provisions require careful application to the particular firm.

For the holding-out assessment, review the firm’s website, presentations, counterparty agreements, quoting arrangements and actual trading conduct together.

A statement that the company “uses only proprietary capital” does not explain whether it offers dealing services. Equally, an internal profit objective should not be treated as a complete answer to every exclusion question.

6. Give market making and OTC activity a separate review

A firm providing liquidity should document its commitments to each venue or counterparty.

Useful questions include:

• Must it maintain quotes?
• Are there minimum availability or volume commitments?
• Does it offer executable prices through an API?
• Can customers request trades directly?
• Does it advertise liquidity or execution services?
• How does it earn spreads, rebates or service fees?

The resulting assessment should explain how those arrangements affect the business test and applicable exclusions.

For an OTC operation, prepare a transaction example showing the customer request, price quotation, contract formation, inventory movement, hedge and settlement.

Illustrative example: A firm quotes a customer a price, sells tokens from its inventory and then replenishes that inventory elsewhere. Calling its inventory “proprietary” leaves the customer-facing transaction unexplained. The legal review should address both parts of the workflow.

7. Analyse the UK connection

An overseas company should map where its trading operation is actually conducted.

Relevant evidence includes the location of traders and decision-makers, offices, contracting entities, operational teams and customer relationships.

The FCA’s territorial guidance requires consideration of ordinary UK territorial principles and activity-specific statutory deeming provisions. Certain overseas dealing activities involving UK consumers can be treated as carried on in the UK.

A useful review separates:

1. Activity conducted through UK operations.
2. Activity conducted overseas with UK counterparties.
3. Customer-facing services involving UK consumers.
4. Execution through intermediaries and trading venues.

Incorporation overseas does not, by itself, resolve all four categories.

8. Verify ownership and external funding arrangements

“Own funds” should be supported by the legal arrangements through which the capital reaches the firm for corporate structuring of VAPS.

Review shareholder subscriptions, loans, token transfers, profit-sharing agreements and funded-account terms.

The assessment should explain:

• Whether contributors retain ownership of particular assets.
• Whether the firm owes a debt or an investment return.
• Whether contributors can direct trades.
• Whether funds are pooled.
• What happens on insolvency or withdrawal.
• Whether the company trades for itself or on another person’s behalf.

These questions help identify assumptions that may otherwise remain hidden in the phrase “proprietary capital”.

For funded trader programmes, distinguish simulated evaluations from live execution. Document who contracts with the venue, owns the account and authorises trades.

9. Prepare a documented business model assessment

A useful perimeter report should make its conclusion reproducible.

Suggested contents include:

This is a suggested working structure. Its purpose is to connect legal conclusions to evidence.

Where authorisation is considered unnecessary, record why, the facts supporting that conclusion and the changes that would require reassessment.

10. Turn the conclusion into an operating plan

If the assessment identifies an authorisation requirement, use it to define the proposed permission scope and application preparation for regulatory compliance advisory services.

If an exclusion supports the conclusion, translate its conditions into practical operating boundaries.

For example, the firm might require legal review before introducing customer quotation services, accepting externally owned trading assets or changing its counterparty model.

A sensible change-control process should cover:

• New instruments.
• New funding structures.
• New customer or counterparty services.
• UK staffing or office changes.
• Market-making agreements.
• Material changes to public descriptions of the business.

The assessment should remain aligned with what the firm actually does.

How CRYPTOVERSE can support your assessment

CRYPTOVERSE is a specialist legal and regulatory firm for UK FCA cryptoasset authorisation support.

For proprietary trading businesses, the starting point is a clear assessment of the instruments, trading arrangements, capital ownership, exclusions and UK connection.

That assessment can support permission planning, application preparation and the operating boundaries needed to keep the business aligned with its regulatory position.

Planning a UK proprietary trading operation, market-making business or OTC desk? Contact CRYPTOVERSE to assess your business model and FCA authorisation requirements.

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