Guidance for Entities Seeking Exemption from Dual Licensing Due to Ancillary Nature of Activities

Summary

This BMA guidance, issued July 2022, explains when a digital asset business licensee that also carries on investment business in a limited, ancillary manner can avoid needing a second licence under the Investment Business Act 2003 (IBA). It sets out the revenue-based test for 'ancillary' activity, a buffer zone for entities near the threshold, and related reporting and supervisory obligations.

• Who it targets: Entities licensed to conduct digital asset business under the Digital Asset Business Act 2018 (DABA) that also carry on IBA-licensable investment business activities on an ancillary basis, as well as applicants for an IBA licence relying on financial projections.
• Ancillary threshold: An activity is considered ancillary if the gross revenue it generates does not exceed 25% of the entity's total gross revenue from DABA-scoped activities; revenue from non-licensable activities is excluded from the calculation.
• Buffer zone: Entities exceeding the 25% threshold but remaining below 35% must notify the Authority and agree either a remediation plan to return under 25% or a roadmap to obtain an IBA licence; operation within the buffer zone is limited to a period not exceeding one year, subject to BMA direction.
• Breach notification: For DABA licensees, the senior representative must forthwith notify the Authority of a threshold breach under section 20 of DABA.
• Reporting requirement: Entities subject to the ancillary exemption must report semi-annually to the Authority a revenue projection for the next 12 months and the key assumptions supporting it.
• Controls and material change: Licensed entities must maintain adequate systems of control to stay within permitted thresholds at all times, and introducing new products that change the business plan triggers a material change notification under section 22 of DABA.
• Authority discretion: The BMA may impose conditions or limitations on a licence to mitigate risks from the ancillary activity, and may adjust its supervisory approach or annual licensing fees for in-scope entities over time.

The guidance notes it will be updated once a comparable exemption is introduced under DABA for licensed investment providers, and that revised versions may be published from time to time.

Key obligations

• Entities relying on the ancillary exemption must ensure ancillary activity revenue does not exceed 25% of total gross revenue from DABA-scoped activities, or notify the Authority if it does.
• If gross revenue from the ancillary activity exceeds 25% (buffer zone up to 35%), the entity must notify the Authority and agree either a remediation plan or a roadmap toward obtaining an IBA licence, and may operate in the buffer zone for no more than one year absent contrary direction.
• DABA-licensed entities' senior representatives must forthwith notify the Authority of any breach of the threshold under section 20 of DABA.
• Entities subject to the ancillary exemption must report to the Authority semi-annually a 12-month revenue projection and the key assumptions underlying it.
• Licensed entities must implement and maintain at all times adequate systems of control to ensure continuous operation within permitted thresholds.
• DABA-licensed entities introducing new products that change their business plan must submit a material change notification under section 22 of DABA.

Applies to

digital asset business licensees under DABA that also conduct ancillary investment business, applicants for a licence under the Investment Business Act 2003

Deadlines

• semi-annually: Entities subject to the ancillary exemption must report revenue projections for the next 12 months and key assumptions to the Authority.
• not exceeding one year: Maximum period an entity may operate within the 25%-35% buffer zone before compliance or licensing action is required.
• forthwith: DABA-licensed entities' senior representative must notify the Authority immediately upon a threshold breach.