The United Kingdom Financial Conduct Authority (FCA) has released a fresh consultation paper on cryptocurrencies to clarify its regulatory scope on the industry called “Guidance on Crypto”. The paper is an
Dubbed the consultation paper is an update to similar guidelines published in January earlier this year and Most of the rules from January were simply issued in the new report called Guidance on Cryptoassets – Feedback and Final Guidance to CP 19/3.
The updated paper, influenced by 92 industry players who provided feedback, is not a drastic alteration to the regulatory environment for crypto – but rather categorises the tokens into different sections.
“This is the latest in a string of regulatory developments in the crypto markets,” stated Herbert Sim, Head of Business Development from Broctagon Fintech Group.
“The guidance outlines that cryptos have no intrinsic value as they are not guaranteed by an underlying asset. Although not a ban, it’s a move in that direction. This lack of enthusiasm is shared by several countries; the US with its scrutiny of Libra, and India, who are looking to implement a similar ban on cryptocurrencies which are not state-regulated. These movements could end up coming back to bite. The international competition on cryptocurrencies is heating up and there are huge risks in being left behind.”
He added that the Chinese central bank, for example, sees a market opportunity in crypto and has written an article outlining its benefits.
“By loosening up on crypto and championing Bitcoin, it appears to see an opportunity to get ahead of the game and take up a leading position in one of the key asset classes of the future.”
“China’s central bank is even throwing itself into the crypto race by consolidating and creating a new digital currency. This may go on to rival that of Facebook’s stifled Libra, particularly considering Facebook is not permitted in China. Although a certain level of regulatory scrutiny is wise, other countries should consider taking China’s lead and seizing their own opportunities – or risk being left behind.”
The regulatory treatment of cryptoassets will not change:
- Security tokens: this category does not change materially from the Guidance that we consulted on and refers to those tokens that provide rights and obligations akin to specified investments as set out in the RAO, excluding e-money. We have now specifically removed e-money from the definition of a security token, to create a separate category. These remain within the regulatory perimeter.
- E-money tokens: this category refers to any token that reaches the definition of e-money. These tokens are subject to the EMRs and firms must ensure they have the correct permissions and follow the relevant rules and regulations. This category formerly sat within the utility tokens category. These tokens fall within regulation.
- Unregulated tokens: this category refers to any token that does not meet the definition of e-money, or provides the same rights as other specified investments under the RAO. This includes tokens referred to as utility tokens and exchange tokens.
- These tokens can, for example, be issued centrally or be decentralised, give access to a current or prospective good or service in one or multiple networks and ecosystems, or be used as a means of exchange. They can be fully transferable or have restricted transferability. These tokens fall outside the regulatory perimeter.
The FCA states in the paper:
“Market participants should use the Guidance as to the first step in understanding how they should treat certain cryptoassets, however, definitive judgements can only be made on a case-by-case basis.”
The proposed ban on crypto derivatives for retail investors, including options, futures, contracts for difference (CFDs) and exchange-traded notes with underlying (unregulated) cryptoassets like bitcoin, is perhaps the most controversial move by the FCA.
Kicking off in August 2019 the FCA will restrict non-crypto CFDs and then starting in September 2019 for non-crypto CFD-like options. The FCA perspective on how to deal with derivatives with underlying crypto-assets is more or less a total ban but the public consultation ends October 3, 2019.
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