Do You Need a GFSO Licence? The Schedule 1 Exclusions Explained, with Worked Examples

Summary

• The General Prohibition in s. 16 of the Financial Services Act 2025 applies only to Regulated Activities carried on "by way of business" in GMC. Each activity in Schedule 1 is read subject to its exclusions (Sch. 1, para. 2(3)).
• Chapter 18 of Schedule 1 (paras. 74–83) contains exclusions that apply across several activities: trustees, professions, sale of goods or services, groups and joint enterprises, sale of a body corporate, Non-GMC Persons, incidental insurance and information, insolvency practitioners and commodity derivative members.
• Activity-specific exclusions cover, among others, absence of holding out (para. 5), risk management (10, 14), arrangements not causing a deal (17), enabling parties to communicate (18), introducing (25), advice in publications (29), technical service providers (53A(i)) and order routing (55).
• An exclusion means the activity is not a Regulated Activity at all. An exemption applies only to the Exempt Firms in Schedule 3.
• Agreements made in breach of the General Prohibition are unenforceable against the counterparty (s. 21).

Exclusions, exemptions and why the distinction matters

Section 16(1) provides: "No person may carry on a Regulated Activity by way of business in GMC ... unless he is (a) a Licensed Firm; or (b) an Exempt Firm." A Licensed Firm is a firm holding a Financial Services Licence from GFSO, the Gelephu Financial Services Office. There are three ways to fall outside the prohibition.

1. The activity is not "by way of business". Schedule 1, para. 3(1) sets three alternative limbs: engaging in the activity in a manner that itself constitutes carrying on a business; holding oneself out as willing and able to engage in it; or regularly soliciting others to engage in it. GFSO may make Rules deeming activities to be, or not to be, by way of business (s. 6).
2. An exclusion applies. Para. 2(3) states that "each provision specifying a kind of activity is subject to the exclusions applicable to that provision (including under Chapter 18)". If an exclusion applies, the person "does not carry on an activity of the kind specified".
3. The person is an Exempt Firm. Schedule 3 lists the Regulator, the Registrar, Licensed Bodies, External Bodies, External Members and public bodies listed on GFSO's website (s. 16(3)). This does not help commercial firms.

Exclusions are activity-specific, so the analysis starts with the activity (see our complete guide to Schedule 1 regulated activities) and then asks whether an exclusion removes it. Two cautions. "By way of business" and "in GMC" are separate questions; an exclusion is unnecessary if either is missing. And the Financial Promotion Restriction in s. 18 is a separate regime with its own exemptions in Schedule 2; an activity exclusion does not by itself permit marketing (see our guide to financial promotions in GMC).

The Chapter 18 general exclusions (paras. 74–83)

Activity-specific exclusions worth knowing

• Absence of holding out (para. 5). A person does not deal as principal in a Security unless it holds itself out as a market maker, as buying with a view to selling, as an underwriter, or regularly solicits the public. An investor trading its own portfolio is not "dealing".
• Own shares (paras. 8, 9, 26). Issuing one's own shares or debentures, or dealing in treasury shares under the Companies Act 2025, is not dealing or arranging.
• Risk management (paras. 10, 14). Hedging with derivatives (paras. 94–96) is excluded where neither party is an individual, the sole or main purpose is limiting an identifiable risk to a "relevant business", and that business is mainly non-regulated. The relevant business may be a Group member's (10(2)(b)).
• Arranging (paras. 17, 18). Arrangements which "do not or would not bring about the transaction" are excluded, as is "merely providing means by which one party to a transaction ... is able to communicate with other such parties".
• Advice in publications (para. 29). Advice in a newspaper, website or broadcast is excluded if the principal purpose of the publication is neither advice nor leading people to deal; GFSO may certify a publication (29(3)).
• Deposits (paras. 39–42). Sums from Licensed Firms, lenders, Group companies, Joint Enterprise partners and close relatives are not deposits (39); nor are sums received by a practising lawyer (40) or for issuing debt instruments, subject to a commercial paper carve-out with a minimum redemption value of 150,000 US Dollars (41).
• Payment services (para. 53A). Fourteen carve-outs, including technical service providers who never possess the money (53A(i)), limited-network instruments (53A(j)) and intra-Group payments (53A(l)).
• Order routing (para. 55). A facility where buying and selling interests "are merely transmitted but do not interact" is not an MTF or OTF.
• Attorneys (para. 57), credit scores (66), public benchmark data (69), incidental credit (49) and unconnected custody introducers (47).

Worked example 1: a group treasury function

A multinational sets up a GMC subsidiary to hold group cash, lend to sister companies, hedge currency and interest-rate exposure, and place surplus funds with banks.

• Intra-group lending is Providing Credit (para. 48), but para. 77(7) excludes a Credit Facility entered into by a Group member "with another member of the same Group".
• Receiving cash from sister companies looks like Accepting Deposits (para. 38), but a sum is not a Deposit if "paid by one Body Corporate to another at a time when both are members of the same Group" (para. 39(1)(c)). Cash from third parties is different.
• Hedging is Dealing as Principal (para. 4) in paras. 94–96 investments. Para. 10 excludes it where neither party is an individual, the sole or main purpose is "limiting the extent to which a relevant business will be affected by any identifiable risk", and the relevant business (including a Group member's) is mainly non-regulated. Para. 77(1) separately excludes principal-to-principal transactions with Group members, and para. 6 covers derivative transactions with or through a Licensed Firm.
• Managing group cash on a discretionary basis is Managing Assets (para. 56), excluded where "the assets in question belong to another member of the same Group" (para. 77(4)).
• Intra-group payments "without any intermediary intervention" are not Payment Services (para. 53A(l)).

"Group" is defined in s. 260 by reference to parent and subsidiary undertakings and participating interests; a 20 per cent shareholding is presumed to be a participating interest (s. 261(2)). A treasury company that also serves unrelated third parties, or markets its services, steps outside these exclusions. The Income Tax Act 2025 contains a Finance and Treasury Centre concessionary rate at s. 43E, which is on the statute book but commences on a date to be appointed by Gazette notification.

Worked example 2: a SaaS trading-tools vendor

A GMC software company sells subscription software that lets fund managers and brokers analyse markets, build order tickets and route orders to their existing brokers. It never touches client money or assets.

• Arranging (para. 16). Software that "merely" provides "means by which one party to a transaction ... is able to communicate" (para. 18), or whose arrangements "do not or would not bring about the transaction" (para. 17), is excluded. The more the vendor does to bring the deal about, matching, negotiating, charging on execution, the weaker the exclusion.
• Operating an MTF (para. 54). A platform where orders "are merely transmitted but do not interact" is order routing (para. 55). If interests interact on the platform, it is an MTF regardless of the "technology company" label.
• Advising (para. 28). Analytics that generate recommendations can be "advice", which includes any "statement, opinion or report" intended to influence a product choice (28(2)). Para. 29 excludes advice in a service "comprising regularly updated news or information" whose principal purpose is neither advice nor leading people to deal. Generic content is safer than instrument-specific recommendations.
• Payment services. Para. 53A(i) excludes "technical service providers, which support the provision of Payment Services, without the provider entering at any time into possession of the Money".
• Sale of services (para. 76). Where the vendor's "main business is to ... supply services" and the Customer is not an individual, arranging and advising "for the purposes of or in connection with" that supply are excluded (76(5), (8)), except for fund units and insurance.

Marketing copy matters: holding itself out as "willing and able" to arrange deals (para. 3(1)(b)) is itself enough to be acting by way of business.

Worked example 3: an introducer

A GMC consultancy refers its clients to a GFSO-licensed wealth manager and receives a referral fee.

Introducing clients is arranging under para. 16(2). Para. 25 excludes arrangements where (a) clients "will be introduced to another person"; (b) that person is a Licensed Firm, an Exempt Firm, or a person lawfully carrying on dealing, arranging, advising, custody, asset management or fund activities; (c) "the introduction is made with a view to the provision of independent advice or the independent exercise of discretion in relation to investments"; and (d) the transaction does not relate to a Contract of Insurance.

A referral fee does not disqualify the introducer under para. 25. Contrast the financial promotion exemption in Schedule 2, para. 7(2)(b), which is lost if the introducer receives a reward from anyone other than the recipient. What matters is condition (c): the introduction must be for independent advice or discretionary management, not for execution of a product the introducer has already recommended. If the consultancy itself advises on the merits of particular investments, it is Advising (para. 28), and the para. 75 professional exclusion applies only if the advice is a "necessary part" of its other services and is not "remunerated separately".

If the introducer executes as agent through the Licensed Firm, para. 13 excludes Dealing as Agent where the client is clearly not seeking the agent's advice, but that exclusion is lost if the agent keeps a reward from anyone other than the client (13(2)(b)). For custody referrals, para. 47 excludes Arranging Custody by an introducer "not connected with the custodian", not in the same Group and not remunerated by the custodian.

Worked example 4: a non-GMC firm dealing with GMC clients

A brokerage regulated abroad, with no office in GMC, has clients who move to GMC.

Is the activity carried on "in GMC"? Section 259 treats an activity as carried on in GMC where the firm's registered or head office in GMC manages it, or where it is carried on from an establishment the firm maintains in GMC. A firm with no GMC establishment is outside both limbs, though "purporting" to act in GMC is also caught by s. 16(1).

Is the firm a Non-GMC Person? Section 258 defines one as a person carrying on activities of the kind in paras. 4, 12, 16, 28, 43, 56, 59, 60 or 61 who "does not carry on any such activities, or offer to do so, from a permanent place of business maintained by him in GMC". The brokerage qualifies.

Does para. 79 apply? A Non-GMC Person does not deal as principal by transacting "with or through a Licensed Firm" or with a person in GMC "if the transaction is the result of a legitimate approach" (79(1)). Agency dealing through a Licensed Firm is excluded, and other agency dealing is excluded unless one party is in GMC and the transaction results from an approach that is not legitimate (79(2)). Advice "as a result of a legitimate approach" is excluded (79(5)), as is agreeing to arrange, intermediate or manage insurance, provide custody or manage assets following one (79(6)). A "legitimate approach" is "an approach made to the Non-GMC Person which has not been solicited by such person in any way", unless the solicitation came from a Licensed Firm or Exempt Firm (79(7)).

The boundary is solicitation. A client who moves to GMC and contacts the broker unprompted makes a legitimate approach. A broker that emails GMC residents, runs GMC-targeted advertising or visits them has solicited, loses para. 79, and must also confront s. 18, which applies to communications from outside GMC that are "capable of having an effect in GMC" (s. 18(3)). Schedule 2, para. 4 exempts communications directed only at Licensed Firms or persons outside GMC, and para. 17 exempts solicited real-time communications by a non-GMC communicator from outside GMC. A foreign firm that wants to solicit GMC clients therefore either obtains a GFSO licence (s. 29 lets GFSO weigh its home regulator's opinion) or works through a Licensed Firm, since dealing and arranging with or through a Licensed Firm are excluded under paras. 6, 21 and 79.

What happens if you get it wrong

An agreement made in the course of a Regulated Activity carried on in contravention of the General Prohibition "is unenforceable against the other party", who may recover money or property transferred and compensation (s. 21). A Licensed Firm's agreement made in consequence of an unlicensed third party's activity is likewise unenforceable (s. 22). The Court may allow enforcement if just and equitable, having regard to whether the person "reasonably believed that he was not contravening the General Prohibition" (s. 23(3)–(4)). A contravention of the General Prohibition is a contravention of the Act (s. 218(1)(d)), exposing the firm to censure (s. 231), penalties (s. 232) and injunctions and restitution (Part 20); anyone "Knowingly Concerned" is equally liable (s. 220).

Practical checklist: applying the exclusions

1. Identify each Schedule 1 activity your business touches, by paragraph number.
2. Check the "by way of business" limbs in para. 3(1), including holding out, and the territorial link under s. 259.
3. Read the "Other exclusions" paragraph for each activity (for example paras. 11, 15, 27, 30, 45, 58) to see which Chapter 18 exclusions apply.
4. Test the conditions of each candidate exclusion, especially remuneration conditions (paras. 74(5), 75(2), 80(c)) and counterparty conditions (Group, Customer, Licensed Firm).
5. Separately test all marketing against s. 18 and Schedule 2.
6. Document the analysis; reasonable belief is relevant under s. 23(3), and GFSO can certify publications (para. 29(3)).
7. Where the position is marginal, seek advice before trading; the General Prohibition has no de minimis threshold.

Frequently asked questions

Does a GMC holding company need a licence to lend to or invest in its subsidiaries?

Generally no. Para. 77 excludes dealing, arranging, advising, custody, asset management and credit where the counterparty or asset owner is in the same Group, and para. 39(1)(c) excludes intra-group cash from the definition of deposit. Group is defined in s. 260, with a 20 per cent participating-interest presumption in s. 261(2).

Is a fintech that only provides software to brokers regulated?

Usually not, provided it only enables communication (para. 18), does not bring about transactions (para. 17), does not operate a venue where orders interact (para. 55) and never possesses payment funds (para. 53A(i)). Instrument-specific recommendations and execution-linked fees push it back into regulated territory.

Can I be paid for introducing clients to a GMC-licensed firm?

Yes, if the para. 25 conditions are met: the introduction is to a Licensed Firm or similar, with a view to independent advice or discretionary management, and does not concern insurance. Marketing the introduction is a separate question; Schedule 2, para. 7 is lost if you are paid by anyone other than the client.

Can a foreign broker keep serving a client who moves to GMC?

If the broker has no GMC establishment and the client's approach was unsolicited, para. 79 generally excludes the activity, and Schedule 2, para. 17 exempts solicited real-time communications from abroad. Soliciting GMC residents changes the answer.

Is an exclusion the same as an exemption?

No. An exclusion means the activity is not a Regulated Activity for that person. An exemption applies only to the Exempt Firms in Schedule 3, which are public and market-infrastructure bodies.

Key takeaways

• Every Schedule 1 activity is read subject to its exclusions (para. 2(3)); find the activity first, then the exclusion.
• Chapter 18 (paras. 74–83) gives cross-cutting relief for trustees, professionals, suppliers, groups, M&A, Non-GMC Persons and insolvency practitioners.
• Group treasury, pure technology, unremunerated professional advice and unsolicited cross-border business are the common excluded cases; remuneration or solicitation can lose them.
• Marketing is a separate regime under s. 18 and Schedule 2.
• Contracts made in breach are unenforceable against the counterparty (s. 21).

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 (Law No. 5 of 2025), ss. 6, 16, 18, 21, 22, 23, 29, 218, 220, 231, 232, 258, 259, 260, 261; Schedule 1, paras. 2, 3, 4, 5, 6, 8, 9, 10, 11, 13, 14, 15, 16, 17, 18, 21, 25, 26, 27, 28, 29, 30, 38, 39, 40, 41, 42, 45, 47, 48, 49, 53A, 54, 55, 56, 57, 58, 66, 69, 70, 74–83; Schedule 2, paras. 4, 7, 17; Schedule 3
• Income Tax Act 2025 (Law No. 6 of 2025), ss. 1(3), 43E