Summary

• Schedule 1, para. 99B of the Financial Services Act 2025 makes an "Environmental Instrument" a Specified Investment and a Financial Instrument. It covers emissions allowances, carbon credits and renewable energy or environmental attribute certificates, provided the instrument is "recognised by the Regulator".
• Dealing (paras 4 and 12), arranging (para. 16), advising (para. 28), custody (para. 43), trading platforms (para. 54) and discretionary management (para. 56) of environmental instruments are regulated activities when carried on by way of business in GMC.
• The Act's recognition requirement means the perimeter depends on a GFSO decision. The Act does not itself list recognised registries, standards or schemes.
• Corporate users buying credits to offset their own emissions can generally rely on the absence-of-holding-out exclusion (para. 5) and the sale-of-goods and non-investment-business exclusions (paras 75 and 76), but each must be checked.
• Environmental instruments are not "Securities" under s. 258, so the Part 6 prospectus regime does not apply to them on the face of the Act; the s. 18 financial promotion restriction and s. 19A misconduct rule do.

Why this provision matters

The Financial Services Act 2025 (the "Act") of the Gelephu Mindfulness City (GMC) lists environmental instruments alongside shares, bonds and derivatives as a kind of investment in its own right. The result is a clear rule: a business that trades, brokers, advises on, safeguards or operates a market in recognised carbon credits from GMC is carrying on financial services and needs a Financial Services Licence from the Gelephu Financial Services Office (GFSO), unless an exclusion applies.

That gives carbon market participants a regulator, a rulebook and a licence category rather than uncertainty about whether a credit is a commodity, a contract or nothing at all. It also fits the direction of the city: gmc.bt lists "Green Energy and Technologies" among GMC's eight priority industries, next to "Finance and Digital Assets". This article explains what para. 99B covers, which activities it triggers, who is excluded, and how a carbon business should plan a licence.

What paragraph 99B says

Paragraph 99B of Schedule 1 provides that an "Environmental Instrument" is a Financial Instrument "that is recognised by the Regulator" which:

• "(a) enables its holder to emit greenhouse gases into the atmosphere, in accordance with any emissions trading scheme (i.e. emissions allowances or equivalent);
• (b) attests to the reduction or removal of greenhouse gases into the atmosphere (i.e. carbon credits or equivalent); or
• (c) attests to the environmental attributes of an underlying unit (i.e. renewable energy or environmental attribute certificates)."

Three families are covered: compliance-market allowances (limb (a)); carbon credits, whether for avoided emissions or removals (limb (b)); and renewable energy or attribute certificates (limb (c)). Section 258 confirms that "Environmental Instrument" means the Financial Instrument described in para. 99B, that "Financial Instrument" includes para. 99B, and that "Specified Investment" means anything in paras 85 to 99B "without regard to any applicable exclusions or exemptions".

The recognition condition

The words "recognised by the Regulator" are the hinge of the provision. An instrument that fits limbs (a) to (c) but has not been recognised by GFSO is not, on the wording, an Environmental Instrument. The Act does not say how recognition is given, whether by Rules, published list or individual notice, and names no registry, standard body or scheme. A business should ask GFSO, before launch, which instruments are recognised and in what form.

An unrecognised credit does not automatically escape regulation. A "Spot Commodity" is "any physical or energy good of a fungible nature that is capable of being delivered and which is or can be traded on a secondary market" (s. 258), and a tokenised credit may be a "Virtual Asset" (s. 258). Dealing, arranging, advising, custody and platform activities extend to both.

Which activities are triggered

An activity is regulated when it relates to a Part 3 investment (Sch. 1, para. 2(1)) and is carried on "by way of business", which includes holding oneself out as willing to engage in it or regularly soliciting others (para. 3). The table sets out the activities a carbon business is most likely to trigger.

The activities overlap. A carbon marketplace that holds credits for users and executes trades for them may be operating a facility (para. 54), providing custody (para. 43) and dealing as agent (para. 12) at once, and each must appear on the Financial Services Licence (s. 17). A licence is needed only for activity in GMC; s. 259 treats an activity as carried on in GMC where the person's registered or head office is in GMC and day-to-day management is its responsibility, or where the activity is carried on from an establishment in GMC.

Derivatives on environmental instruments

Options (para. 94), futures (para. 95) and contracts for differences (para. 96) can all be written over environmental instruments. Paragraph 95(2) excludes futures made for commercial rather than investment purposes, with indicators in paras 95(3) to (7); forward purchase agreements for credits from a project, priced by the parties and intended for delivery, will often sit on the commercial side of that line. Paragraph 83 separately excludes bodies corporate dealing in Commodity Derivatives for their own account as members of a Licensed Body or External Body, subject to conditions.

Who is excluded

The Act's exclusions keep ordinary commercial users outside the perimeter. Each should be read in full before being relied on.

Absence of holding out (para. 5). A person does not deal as principal by entering into a transaction relating to a Security or "an investment specified in paragraphs 98 or 99B" unless it holds itself out as a market maker, as a buyer with a view to selling, as an underwriter, or regularly solicits the public (para. 5(1)). A company that buys credits to retire them against its own emissions, and does not hold itself out as a trader, is not dealing as principal.

Profession or non-investment business (para. 75). Dealing as agent, arranging, advising and custody are excluded where carried on in the course of a non-financial profession or business and the activity "may reasonably be regarded as a necessary part of other services" (para. 75(1)), but not where "remunerated separately" (para. 75(2)). A sustainability consultancy sourcing credits within an advisory engagement should test this; a separate brokerage fee defeats it.

Sale of goods and supply of services (para. 76). Transactions by a "supplier", whose main business is selling goods or services, in connection with that sale or supply are excluded from dealing as principal (para. 76(3)) and, subject to conditions, as agent (para. 76(4)). A renewable energy developer selling attribute certificates alongside its power is the natural candidate.

Groups (para. 77), trustees (para. 74) and Non-GMC Persons (para. 79). Intra-group transfers of allowances, trustees holding credits without holding themselves out or being separately remunerated, and foreign brokers responding to unsolicited approaches from GMC clients each have a defined exclusion.

None of these exclusions applies to operating a trading facility, and the custody exclusions are narrow (see our guide to crypto custody in GMC for the para. 44 and 45 analysis, which applies equally to registry-held credits).

Offers, promotions and conduct

An Environmental Instrument is a Financial Instrument but not a "Security": the s. 258 definition lists paras 87 to 93 and 99A, para. 98 so far as relevant, and anything declared or deemed a Security, but not para. 99B. On the face of the Act the Part 6 prospectus regime (ss. 58 to 61) does not apply to an offer of carbon credits. The Regulator may, however, deem "any investment which is not a Security to be a Security" by written notice (s. 58(2)(b)), and a carbon fund's units are Securities under para. 93 in any event.

The financial promotion restriction does apply. Section 18(1) prohibits communicating, in the course of business, "an invitation or inducement to Engage in Investment Activity", which includes entering an agreement whose performance constitutes a Regulated Activity, or would but for an exclusion (s. 258). Marketing recognised credits to GMC buyers therefore needs a Licensed Firm, approval by one, or a Schedule 2 exemption such as communications directed only at persons outside GMC (para. 4) or generic promotions (para. 8). See our guide to financial promotions in GMC. Section 19A separately prohibits misleading, deceptive, fraudulent or dishonest conduct "in relation to a Specified Investment"; claims about the integrity, vintage or retirement status of a credit are measured against it.

Tokenised credits

Tokenising a credit does not change the analysis. A tokenised credit that GFSO recognises is an Environmental Instrument; the ledger is only the record. Custody of the token is Providing Custody under para. 43, which covers assets held in uncertificated form (para. 43(2)(a)). An unrecognised token may still be a Virtual Asset, for which s. 5A lets GFSO set requirements, including which assets are "Accepted". See our guide to tokenisation and digital securities in GMC.

Licensing a carbon business

Licensing follows the standard GFSO route on gmc.bt/GFSO: initial meeting, business model presentation, application with a non-refundable fee, review, In-Principle Approval with pre-conditions, and issue of the licence once incorporation, bank account, capital, office and staff are in place (see our guide to the GFSO application process). GEN Rulebook 2026 requires a Senior Executive Officer, Compliance Officer and Money Laundering Reporting Officer (GEN 5.5.1). Capital requirements are set by GFSO under the Threshold Conditions (s. 28) and the Prudential rulebook; the Act does not state figures.

On tax, a company carrying on a carbon business in GMC pays 15% on chargeable income (Income Tax Act 2025, s. 43(1)(a)); the founders company exemption (s. 13Y) and strategic and development company concession (s. 43D) can be applied for until 31 December 2030 (see our guide to the founders company exemption).

Practical checklist / Next steps

1. List every instrument the business will handle and ask GFSO, in writing, whether each is recognised under para. 99B.
2. For unrecognised instruments, classify them as Spot Commodities, Virtual Assets or outside the perimeter, and document the reasoning.
3. Map the business model against paras 4, 12, 16, 28, 43, 46, 54, 56 and 59 and identify every activity that needs to be on the licence.
4. If the model is corporate offsetting, sustainability consulting or energy supply, test paras 5, 75, 76 and 77 and record why each condition is met, including that no separate remuneration is taken.
5. For forward and derivative contracts, apply the para. 95 commercial-purpose indicators.
6. Route all marketing through s. 18 and Schedule 2, and review every claim about credit quality against s. 19A.
7. If credits are pooled for investors, treat the structure as a fund under s. 106.

Frequently asked questions

Are carbon credits regulated in GMC?

Yes, where they are "recognised by the Regulator". Paragraph 99B of Schedule 1 to the Financial Services Act 2025 makes recognised emissions allowances, carbon credits and environmental attribute certificates Specified Investments and Financial Instruments, so dealing, arranging, advising, custody, platform and management activities in them by way of business in GMC need a GFSO licence.

Does a company need a licence to buy credits to offset its own emissions?

Usually not. Paragraph 5 excludes principal transactions in para. 99B instruments unless the buyer holds itself out as a trader, buys with a view to selling, underwrites or solicits the public. Paragraph 76 also excludes transactions connected with a supplier's own sale of goods or services. The position should be confirmed against the facts.

Which registries or standards does GFSO recognise?

The Act does not name any. Recognition is left to the Regulator, and the form of recognition is not prescribed in the Act. Confirmation should be obtained from GFSO before launch.

Is a prospectus needed to sell carbon credits?

Not on the face of the Act. Environmental instruments are not within the s. 258 definition of "Security", so Part 6 does not apply unless GFSO deems the instrument a Security under s. 58(2)(b). Units in a carbon fund are Securities and are subject to s. 106A.

Key takeaways

• Paragraph 99B makes recognised allowances, carbon credits and attribute certificates Financial Instruments; the perimeter turns on GFSO recognition.
• Dealing, arranging, advising, custody, trading platforms, discretionary management and carbon funds are all licensable activities in GMC.
• Corporate offsetters, incidental advisers and energy suppliers have specific exclusions in paras 5, 75, 76 and 77, each with conditions.
• Environmental instruments are not Securities, so Part 6 does not apply on the face of the Act, but s. 18 promotions and s. 19A conduct rules do.
• Tokenising a credit changes the record, not the regulation; custody of the token is para. 43 custody.

This article is general information about the law of the Gelephu Mindfulness City Special Administrative Region as at the date above. It is not legal advice and does not create a lawyer–client relationship.

You may contact Basnet Law at basnet@basnetgmc.com or office@basnetgmc.com for any legal queries related to GMC.

References

• Financial Services Act 2025, ss. 5A, 16, 17, 18, 19A, 28, 58, 106, 106A, 258 (definitions of Environmental Instrument, Financial Instrument, Specified Investment, Security, Spot Commodity, Virtual Asset, Engage in Investment Activity), 259; Schedule 1, paras 2, 3, 4, 5, 12, 16, 28, 43, 44, 45, 46, 47, 54, 56, 59, 74, 75, 76, 77, 79, 83, 93, 94, 95, 96, 99B; Schedule 2, paras 4, 8
• GEN Rulebook 2026, Chapter 2, Rule 5.5.1
• Income Tax Act 2025, ss. 13Y, 43(1)(a), 43D