The UK’s Financial Authority (the Financial Conduct Authority or FCA) has recently issued a consultation paper entitled “Guidance on Cryptoassets”. The FCA will issue a Policy Statement following the consultation period which ends in [April].
The purpose of the Consultation Paper is “to provide regulatory clarity for market participants carrying on activities in this space. The cryptoasset market, and the underlying DLT technology, is developing quickly and participants need to be clear on where they are conducting activities that fall within the scope of the FCA’s regulatory remit and for which they require authorisation”. The Consultation Paper intends to provide crypto market participants with guidance on their regulatory views.
The FCA states that “ there is no single agreed definition of cryptoassets, but generally, cryptoassets are a cryptographically secured digital representation of value or contractual rights that is powered by forms of DLT and can be stored, transferred or traded electronically. The FCA have defined the following sub-classes of tokens:
- Exchange tokens: the FCA states that these tokens currently fall outside the regulatory perimeter, and, therefore, “the transferring, buying and selling of these tokens, including the commercial operation of cryptoasset exchanges for exchange tokens, are activities not currently regulated by the FCA”.
- Security tokens: the FCA understand that these tokens meet the definition of a Specified Investment and, possibly, a Financial Instrument under MiFID II. On this basis, security tokens are considered to be within the regulatory perimeter.
- Utility tokens: the FCA states that “as utility tokens do not typically exhibit features that would make them the same as securities, they won’t be captured in the regulatory regime, unless they meet the definition of e-money”.
The mere fact the FCA has seen fit to divide tokens into the aforementioned class may indicate that they are going to create three separate regimes. This only further establishes the importance of understanding the nature of the specific token and ensuring that it complies with the applicable rules.
Despite this the FCA indicated that they “also want to add more flexibility to our regulatory framework and identify barriers to entry for innovative firms through our policy work”. We will have to wait and see what comes of this consultation.