The UK FCA publishes the final guide to cryptocurrency regulation, and multiple types of cryptographic assets are clearly defined

According to Coindesk's July 31 report, the UK Financial Market Conduct Authority (FCA) has developed a final guide to the regulation of cryptographic assets, identifying which tokens fall under its jurisdiction.


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Most of the regulations issued on Wednesday were presented in the consultation document CP19, which was consulted by the public in January this year. As is widely expected, the final guide does not completely change the regulatory landscape, only to clarify when certain types of crypto assets are classified into existing asset classes.

FCA classifies cryptocurrencies such as Bitcoin and Ethereum as "exchange tokens" that are not regulated but apply to anti-money laundering rules.

FCA said that about 92 entities, including banks, trade associations and cryptocurrency exchanges, responded to this consultation paper, and most respondents supported the proposals.

Importantly, the guide defines a security token. The issuance of these assets is similar to the issuance of stocks, debt instruments and ownership, and is attributed to the “special investment product” type and is therefore within the jurisdiction of the FCA. Almost all respondents who responded to the issue agreed with the regulator's assessment of securities-type tokens that are subject to such tokens.

In contrast, utility tokens are not granted the same rights as regulated financial instruments and are therefore generally outside the jurisdiction of the FCA unless they are in line with the definition of electronic money and belong to the new e-money generation. Currency category. The agency stated:

“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 be regulated, for example, when they are used for Regulated payment time."

However, some stable currencies may also conform to the definition of electronic money and will therefore be regulated by the FCA because the FCA's role is to protect consumers and investors.


Bitcoin prices have performed in the past 30 days. Source: CoinDesk

However, the regulator said, “Market participants should first refer to the content of the guide when they understand how they should treat certain cryptographic assets, and then make a final judgment based on the specific situation.”

FCA Strategy and Competition Executive Director Christopher Woolard said in a statement:

“This is a small, complex and evolving market that encompasses 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 regulatory approval, just as issuing a stock does not require a license. However, the FCA said that in the case of any token transaction, the consultants and brokers who handle the tokens and the financial promotion plan need to be authorized.

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

Fuzzy boundary

The ICO boom between 2017 and 2018 has largely subsided, alleviating some of the pressure on regulators, but there are still some obstacles in defining certain types of cryptographic assets.

Jacqui Hatfield, a partner at Orrick's London office specializing in encryption, said that with the growing popularity of securities-based tokens, these tokens and utility tokens The boundaries between them may become blurred.

Hatfield pointed out that in some cases, some utility tokens may eventually be packaged into securities tokens, he told CoinDesk:

“Interestingly, the utility tokens you get are disguised as securities tokens, and the project is just to make sure they don’t violate any of the promotional terms. So the problem is that when it comes to trading, it really changes. Is the nature of the token itself?"

In this regard, FCC Innovation Director Nick Cook reiterated the need to study the nature of individual tokens and their distribution on a case-by-case basis. In an interview with CoinDesk, Cook said:

"We don't rely on labels, especially labels like stable coins. We find that these terms are not particularly useful because they may be a security token or an electronic currency token, or a Unregulated tokens.

Therefore, individuals or entities may try to make tokens appear in some way to adapt or not adapt to these parameters, but we will always pay attention to their basic characteristics. As stated in the original consultation document, utility tokens may in some cases conform to the definition of electronic money (as well as other tokens), in which case the activities associated with them may fall within the jurisdiction of the FCA.

The FCA agreed to further clarify the type of token and stated that it would separate the e-money type from the utility-type token and the securities-type token category. The regulator stated:

“This will create a specific regulated e-currency token category and an unregulated category that includes utility tokens.”


The performance of the past 30 cents in the price of the Ethereum. Source: CoinDesk

According to the guide, stable coins are designed to maintain parity with legal tenders and may also fall within the definition of electronic money. If the encrypted asset is issued after receiving the funds (ie legal tender, not other encrypted assets) and is accepted by someone other than the electronic money issuer, it can be considered electronic money.

Hatfield pointed out that this would include an encrypted asset that was issued immediately after receiving the pound and linked to the pound, as long as the asset was accepted by a third party, it would be in line with the definition of electronic money.

FCA pointed out that cryptocurrencies such as Bitcoin and Ethereum do not have a power control department or a centralized issuer and are therefore transactional tokens that are not covered by the FCA. However, transactional tokens (and other cryptographic assets) will apply to the EU Article 5 Anti-Money Laundering Directive (5AMLD), which will be converted to UK law by the end of 2019.

Bradley Rice, senior supervisor of Ashurst's law firm, said the UK Treasury will publish a more interesting document because it may revise the scope of regulation – this is the FCA In its response, it is strongly stated. He added:

“The FCA is now at a loss. If the UK wants to include more crypto assets in its regulatory framework, it must revise the law, which is a gift from the UK Treasury.”

Derivative ban

Perhaps the FCA's most controversial move (a different move from Wednesday's guide) is to ban retail investors from trading on cryptocurrency derivatives, including options, futures, spread contracts (CFDs), and exchange-traded instruments (ETNs), such as Bits. The currency is the subject of (unregulated) encrypted assets.

Beginning in August, FCA will limit non-cryptocurrency spread contracts and then limit non-cryptocurrency spread contract options in early September. Consultations on how to treat derivatives with crypto assets as targets will end on October 3; the FCA's recommendation is a total ban.

Hatfield said that in the FCA's cryptocurrency regulations, the ban on cryptocurrency derivatives is her only resolute objection. She concluded:

"The intention is that this will be a comprehensive ban on retail investors in the future. My point is that in the retail market, these financial products should be treated as derivatives like other financial products because they are not risky."