UK FCA publishes the final guide to cryptographic assets, clarifying its jurisdiction

The Financial Conduct Authority (FCA) has finalized its Guide to Encrypted Assets, which clarifies which tokens fall under its jurisdiction.

Most of the rules released on Wednesday were presented in Consultation Paper CP19 , which was released in January this year and is used for public comment. As is widely expected, the final guide does not completely change the regulatory landscape, but rather clarifies when certain types of cryptographic assets belong to existing categories.

According to FCA, the consultation received a total of approximately 92 responses from various companies, including banks, industry associations and cryptographic exchanges. FCA stated that most respondents supported these proposals.

Importantly, the guide provides a definition of a Security Token. When issued, these assets behave like stocks or debt instruments, including ownership, and therefore belong to the category of “ specific investments ” and thus belong to the FCA. Almost all respondents who answered the questions agreed with the regulator's assessment of the securities-type tokens associated with the scope of regulation.

In contrast, Utility Tokens do not grant the same rights as regulated financial instruments and are generally outside the jurisdiction of the FCA, except in the case of e-money definitions that fall within the definition of a new e-currency token. under.

The agency said: "Any token that is not a securities token or an electronic currency token is unregulated. However, market participants should be aware that certain token-using activities may still be regulated, for example, when When promoting regulated payments."

However, some stable currencies may also conform to the definition of electronic money and will therefore be subject to supervision by the FCA, whose mission is to protect consumers and investors.

The third definition is "Exchange Token", which includes cryptocurrencies such as Bitcoin and Ethereum. Although anti-money laundering rules apply, these currencies are not regulated by the FCA.

However, the regulator said, “Market participants should use the guide as a first step in understanding how they should treat certain cryptographic assets, but the final judgment can only be made on a case-by-case basis.”

Christopher Woolard, FCA's Strategy and Competition Executive Director, said in a statement, “This is a small, complex and evolving market that covers a wide range of activities. Today's guide will help clarify which cryptographic asset activities are within our regulatory reach. ”

Companies can issue securities-type tokens without the need for a regulatory license, just as issuing a stock does not require a license. However, the FCA stated that in the case of any token used for trading, the consultants and brokers handling the tokens and the financial promotion system need to be authorized.

FCA states that if a securities token can be traded on the capital market, it will be further considered as a negotiable instrument under the EU Financial Instruments Market Directive (MiFID) and the system will also apply.

Blurred boundary


The explosive growth of ICO from 2017 to 2018 has been greatly weakened, reducing some of the pressure on regulators, but there are still some problems in defining certain types of cryptographic assets.

Jacqui Hatfield, a partner in the London office of Orrick's office specializing in encryption, said that as securities-based token issuance (STO) is becoming more popular, the line between securities-based and utility-based tokens may become blurry.

Hatfield pointed out that practical tokens may eventually be wrapped in a package of securities tokens. He told CoinDesk, "Interestingly, the practical tokens you get are dressed as securities tokens just to make sure they don't violate any promotion type restrictions. So the problem is that when trading tokens, this really Will it change the nature of the token itself?"

As stated in the original consultation document, utility tokens may in some cases conform to the definition of electronic money (other tokens are also possible), in which case activities related to them may be within the jurisdiction of the FCA.

FCA agreed to further clarify the type of token and stated that it would separate the e-currency token from the utility token and the securities token category. “This will create a specific regulated e-currency token category and an unregulated category including utility tokens.”

According to the report, stable currencies designed to maintain parity with legal tenders may also fall within the definition of electronic money. If the encrypted asset is issued upon receipt of funds (ie legal tender, not other encrypted assets) and is accepted by someone other than the electronic money issuer, these can be considered electronic money.

Hatfield noted that this would include an encrypted asset issued after the receipt of the pound and linked to the pound, as long as the asset is accepted by a third party.

FCA refers to cryptocurrencies such as Bitcoin and Ethereum that have no control or centralized issuers as exchange tokens, which are beyond their regulatory scope. However, the EU's fifth anti-money laundering directive (5AMLD) will regulate exchange-based tokens (and other crypto assets), which will be converted to UK law by the end of 2019.

Derivative ban

FCA's most controversial move may be the proposed ban on retail investors using cryptographic derivatives , including options, futures, CFDs, and exchange-traded notes based on (unregulated) cryptographic assets such as Bitcoin, which was released on Wednesday. The guide is different.

Beginning in August, the FCA will be prepared to limit CFDs and then limit CFD options in early September; CFD is expected to be completely banned in the end.

Hatfield said that the concept of disabling encrypted derivatives is the only thing in the FCA encryption regulations that she strongly disagrees with.

“This means that (these restrictions) will be transformed into a total ban on retail in the future,” she concludes. “My point is that these should be considered derivatives in the general retail market, just like any other derivative, because They have no higher risks."

This article comes from CoinDesk , the original author: Ian Allison

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