UK's Crypto Industry Gets Final Guidance on Cryptoassets
The Financial Conduct Authority (FCA), a financial regulatory body in the United Kingdom, issued the Final Guidance on Cryptoassets today.
This Policy Statement is FCA’s response to Guidance on Cryptoassets Consultation Paper published in January this year, as it was reported. It summarizes the feedback to that Consultation paper and FCA’s responses, and it sets out the regulator’s Final Guidance that “will enable market participants to understand whether certain crypto assets fall within our perimeter or are otherwise regulated,” adding “Our Final Guidance will make it clear that firms carrying on certain specified activities in relation to cryptoassets in the UK must get the appropriate authorisation from us.”
According to the Guidance, it will enable market participants to have increased certainty regarding their activities “while meeting our own regulatory objectives of consumer protection, enhancing market integrity and promoting effective competition in consumers’ interest.”
FCA received 92 responses to their consultation paper “from across the financial services sector and beyond”, including banks, trade associations, consultancies, fintechs, token issuers, cryptoasset exchanges, etc., most of whom reportedly supported the proposal. Hence, the Final Guidance is not significantly different from the consultation paper. FCA has “reframed the taxonomy to better reflect market observations and ensure our Guidance is clear and accurate.”
FCA’s responses and conclusions include:
- Cryptocurrencies, which are in the Guidance termed as “exchange tokens”, do not fall within the regulatory perimeter.
- Exchange tokens can be used to facilitate regulated payment services, such as international money remittance.
- All firms (market participants) that are using crypto assets to facilitate regulated payments must ensure that they have the correct permissions and follow the relevant rules and regulations.
- Crypto assets other than exchange tokens can be used to facilitate regulated payments, particularly stablecoins.
- Security tokens are regulated: these are the tokens that provide rights and obligations similar to specified investments and financial instruments, hence being similar to traditional instruments like shares, debentures, or units in a collective investment scheme.
- Utility tokens are not regulated, except if they fall within the category of e-money tokens. Changes to the Guidance have been made to clarify the unregulated tokens category. E-money tokens are thus separated from the utility tokens and security tokens category, creating a regulated e-money token category and an unregulated category that includes utility tokens.
- E-money tokens is, therefore, a new, regulated category; firms must ensure they have the correct permissions and follow the relevant rules and regulations.
The Guidance states that it will inform further work to be done, including:
- FCA’s consultation on potentially banning the sale of derivatives connected to certain types of unregulated crypto assets to retail clients
- Treasury’s consultation on whether further regulation is required in the crypto asset market, especially in regards to unregulated crypto assets
- Treasury and FCA work on transposing the Fifth Anti Money Laundering Directive (5AMLD).
As the country is preparing for Brexit, FCA says that it’s working to ensure that “the UK’s legal and regulatory framework for financial markets will also continue to function in the absence of a withdrawal agreement or implementation period.”
Finally, the FCA stated that the Guidance represents their views only, and that it does not bind the courts, though “it can be a persuasive factor in the courts’ determinations”. Nonetheless, it also says that if a market participant “acts in line with” the Guidance, the FCA will treat the market participant “as having complied with the relevant rule or requirement.”