Britain’s Financial Conduct Authority (FCA) Releases Consultation Paper on Crypto Asset Regulation
The crypto market in Britain has been a debate for quite a while, as the legislators determine how to regulate the various crypto assets.
The last year has not exactly been the best year for cryptocurrency, and every jurisdiction in the world has to determine the best way to protect their economy and their consumers in the market. In response to these clear needs, the Financial Conduct Authority (FCA) has published a consultation paper, which is called “Guidance on Cryptoassets.”
Ultimately, the goal is that this paper will be used by investors to offer clarity to the various concerns on crypto assets. Right now, the consultation period is scheduled to end on April 5th, which the paper is made to initiate. After April 5th, a policy statement will be released with the final decisions from the FCA.
Executive director of strategy and 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.”
During the introduction, the final version will be to “help market participants to understand whether the cryptoassets they use are within the regulatory perimeter.” Elaborating, the paper says,
“This will alert market participants to pertinent issues and should help them better understand whether they need to be authorized and what rules or regulations apply to their business.”
The FCA brings in the possible definitions that crypto assets will be classified under, and how the UK laws apply. One area, in particular, states that the Regulated Activities Order (RAO) says that crypto assets could be categorized as “Specified Investments,” while the Markets in Financial Instruments Directive II would call them “Financial Instruments.”
The paper notes that these assets could fall under the authority of the E-Money Regulations or the Payment Services Regulations. Stablecoins are one of the crypto assets that could be ruled by e-money regulations, if “backed by certain assets (which may include Specified Investments), a basket of cryptoassets, or potentially through algorithms that maintain the supply of the token.”
The guidance paper essentially says that there are three main categories that could potentially cover all crypto assets – exchange tokens, security tokens, and utility tokens. Exchange tokens are “not issued or backed by any central authority and are intended and designed to be used as a means of exchange.” Security tokens most likely fall under the RAO and would be “within the perimeter” of the FCA’s regulatory measures.
The utility tokens are meant for direct access to a product, which means they cannot be treated the same way as security tokens. Referring to the paper in an email to CoinDesk, PwC’s Steve Davies said that there are risks with crypto assets in this paper, but “there are also a lot of positives.” He added,
“Some questions remain unanswered, including whether certain unregulated cryptoassets should be brought under the FCA’s jurisdiction to further protect consumers, and whether the existing regulatory framework is appropriate given the unique features and risks associated with these products.”
Presently, based on reports from December, the FCA is investigating 18 separate companies for their use of cryptocurrency. In the same month, an outline of tax legislation for crypto holders was published by the tax collection service in the UK.
Later in the year, the financial watchdog of the UK plans to reconvene to discuss a possible bank on the sale of derivatives to retail customers, based on their connection with certain crypto assets.