As crypto assets carry risks for consumers and investors, clarification of what is regulated and what is not was needed. Also, it helps businesses wishing to operate compliant businesses based on crypto assets. The Authority divides the crypto tokens into three categories and suggests whether these can be accommodated under existing rules overseen by the FCA (for example, as specified investments, financial instruments or e-money).
“Security tokens” are classed as specified investments, since their definition meets the one set out in the Financial Services and Markets Act 2000 (Regulated Activities) Order. Thus, for security tokens, all the rules covering traditional securities will apply to them, too. Accordingly, businesses wanting to deal in securities tokens would have to apply for permission from the FCA.
Also, even if “utility tokens” may meet the criteria of e-money in certain circumstances, these would not generally be regulated by the FCA.
Stablecoins, tokens pegged to a fiat currency like USD or GBPs, might meet the definition of e-money 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.”
Still, “exchange tokens,” such as Bitcoin and Litecoin, are not specified investments as they are currently not recognized as legal tender in the UK and are volatile compared to other investment avenues such as fiat currencies and commodities. Therefore, the buying and selling of these tokens do not fall under the FCA’s remit, the paper states.
The regulator is now seeking public comment on the guidance – which follows a 2018 pledge for further clarification on crypto assets from the UK Cryptoassets Taskforce – by April 5, 2019.
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