UK FCA New Guidance on Cryptoassets

By Jonathan Lawrence

The UK Financial Conduct Authority (FCA) has issued its consultation paper, Guidance on Cryptoassets. It focuses on where cryptoassets interact with the FCA’s regulatory “perimeter” (the perimeter).  The guidance looks at where cryptoassets would be considered ‘Specified Investments’ under the Regulated Activities Order (RAO), ‘Financial Instruments’ such as ‘Transferable Securities’ under the Markets in Financial Instruments Directive II (MiFID II), or captured under the Payment Services Regulations (PSRs), or the E-Money Regulations (EMRs). It also covers where cryptoassets would not be considered ‘Specified Investments’ under the RAO. Comments on the consultation paper are requested by 5 April 2019.

The FCA guidance provides its risk assessment of such products. It summarises the FCA’s actions to date, future actions and how cryptoassets are currently subject to FCA regulation. There is a Q&A section on some of the more common questions that the FCA is asked plus a section highlighting where the FCA is able to further assist firms in this area.

Cryptoassets are defined by the FCA in three categories:

  • Exchange tokens: not issued or backed by any central authority. Intended and designed to be used as means of exchange. Usually a decentralised tool for buying and selling goods and services without traditional intermediaries. Usually outside the perimeter.
  • Security tokens: with specific characteristics meaning they meet the definition of a Specified Investment (like a share or a debt instrument as set out in the RAO). Within the perimeter.
  • Utility tokens: grant holders access to a current or prospective product or service. Do not grant holders rights that are the same as those granted by Specified Investments. Although utility tokens are not Specified Investments, they might meet the definition of e-money in certain circumstances (as could other tokens), in which case activities in relation to them may be within the perimeter.

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