UK Financial Regulatory Body Published Consultation Document On Cryptocurrency
FCA (Financial Conduct Authority) is the financial regulator of the United Kingdom which has released a consultation paper called “Guidance on Cryptoassets” on 23rd January. The consultation paper proposed how crypto asset should be regulated in the nation. The aim of this consultation paper released was to give more clarity of regulations for market participants. The consultation period is scheduled to end on April 5, 2019 post which final guidance will be released.
The financial regulator assigned the different crypto tokens into three categories namely exchange tokens, security tokens, and utility tokens so that these can be accommodated under specific rules administered by FCA.
- Exchange tokens: Tokens which are “not issued or backed by any central authority and are intended and designed to be used as a means of exchange.”
- Security tokens: Tokens that are likely to fall under RAO and are “within the perimeter” of regulations laid by FCA.
- Utility tokens: Tokens which provide users access to a product, but unlike security tokens, do not grant the rights.
The FCA declared that the final guidance will “help market participants to understand whether the crypto assets they use are within the regulatory perimeter.” One of the regulators also quoted that:
“This will alert market participants to pertinent issues and should help them better understand whether they need to be authorised and what rules or regulations apply to their business.”
FCA explains all possible definitions of crypto assets and applicable laws of U.K. The consultation paper considers crypto assets as “Specified Investments” under RAO (Regulated Activities Order) of state or “Financial Instruments” regulated by the Markets in Financial Instruments Directive II. Such assets could also be regulated by Payment Services Regulations or E-Money Regulations.
The only reason for the formulation of these guidelines is that the crypto assets carry risks for consumers and investors. The executive director of Strategy & Competition, Christopher Woolard said:
“This is a small but growing market and we want both industry and consumers to be clear what is regulated, and what isn’t. This is vital if consumers are to know what protections they’ll benefit from and in ensuring we have a market functioning as it should.” The FCA said that: “A firm wanting to create infrastructure for the buying, selling and transferring of security tokens (commonly known as exchanges or trading platforms) must ensure it has the appropriate permissions for the activities it wants to carry out.”