U.K. Financial Regulator, FCA (The Financial Conduct Authority) sets out the detailed guidance on all existing crypto assets including Bitcoinand Ethereum. The watchdog has updated the current Policy statement on Aug 1st.
FCA believes that the crypto-asset market and DLT technology is evolving rapidly. The emerging technology has made the authority to come up with important regulatory parameters to provide participants clarity on which crypto assets fall under what category to operate the business and what rules and regulations they need to follow to work on the existing types of digital assets.
The guidance is following the consultation paperwhich the overseer first introduced on Jan 23rd for public comments. The latest versionof the Final policy statement titled “PS19/22” publishedvia PDF document on July 31, by the name “Guidance on Cryptoassets.”
The FCA has mentioned the category of people for who these regulatory parameters apply to.
• firms issuing or creating crypto-assets
• firms marketing crypto asset products and services
• firms buying or selling crypto assets
• firms holding or storing crypto assets
• financial advisers
• professional advisers
• investment managers
• recognized investment exchanges
• consumers and consumer organizations
The document reads that the major crypto assets such as Bitcoin (BTC) and Ethereum (ETH) are qualified as “exchange tokens” which are generally “decentralized and primarily used as a means of exchange without traditional intermediaries.” However, these tokens are bound to follow anti-money laundering rules. As per the law, such digital currencies are beyond any regulatory scope of the FCA. These cryptocurrencies’, ‘crypto-coins’ or ‘payment tokens are outside the regulator’s remit because these are not issued or backed by any central authority.
Security Tokens & E-Money (Utility Token) Fall Under FCA Regulatory Perimeter
As per the guidance, both security tokens and few utility tokens may be regulated.
The UK Finance Watchdog mentions that security tokens fall under the regulatory perimeter of FCA. Security tokens possess the specific properties which offer rights and obligations which are similar to “specified investments, for instance, share or a debt instrument.” Security token includes the ownership rights which makes them fall under the category of a “specified investment” and, in turn, the FCA’s remit.
On the other hand, about Utility tokens, the consultation paper displays that these tokens in spite of providing access to the “current or prospective product or service” to the holders do not provide or grant any right like specified investments as a regulated financial instrument.
As Utility tokens are not specified investments and hence do not fall under FCA’s remit. However, in some circumstances, if the utility tokens meet the definition of e-money and fall under its category, it may be regulated by the FCA. Meaning, the definitive judgments of the overseer can only be made on a case-by-case basis and the market participants should use it as guidance in understanding how they should treat certain crypto assets.
According to the information, stable coins may also fall under the regulations. However, it is important to note that not a very stable coin would meet the classification and characterization of security token or e-money. Meaning, any token which is not a security token or e-money would not be regulated by the authorities.
Tags: FCA, Bitcoin Regulations, Bitcoin, Ethereum, Stable Coins, Utility Token, Security Token, E-money, Digital assets, Cryptocurrency, crypto assets.