- The Financial Conduct Authority in the UK has issued guidelines on cryptocurrency.
- Cryptocurrency derivatives and ETNs are presently prohibited.
The United Kingdom was working to find some clarity on their cryptocurrency policies through the last year, which they promised to deliver. The financial watchdog in the UK, the Financial Conduct Authority (FCA) has now published a report to update the public on the state of the cryptocurrency industry within the UK, according to The Block.
This new guidance is about the same as what the public expected, providing an overview of what the FCA will control regulations for in the industry. Draft versions of the guidance were issued in January this year, which are pretty close to what the FCA decided for their regulations.
One of the main policies that remains close to the proposal is that “any token that is not a security token, or an e-money token, is unregulated.” For the unregulated tokens, while they will not be overseen by the FCA, they will need to abide by the current KYC policies.
Realistically, the industry has predominantly been operating with these rules in mind already, according to commentators. However, the fresh guidelines can eradicate any uncertainty amongst participants in the space. According to an article from The Next Web’s Hard Fork, the FCA’s report said,
“Following our consultation, we are proceeding with the guidance that was consulted on, with some drafting changes to improve clarity based on responses. This includes reframing our taxonomy of crypto assets to help market participants better understand whether tokens are regulated, and where they fall outside our remit.”
The FCA formed the Crypto Asset Task Force last year, aiming to create a narrative on how these crypto assets work within the current regulations. Once the January drafts came out in January, the policies were open to a consultation period, allowing 90 actions to provide feedback through April.
Christopher Woolard, the executive director of strategy and competition for the FCA, said that the market is “small, complex, and evolving,” which is why this new guidance is helpful in demonstrating what actually falls under the regulation of the FCA.
Overall, there’s definitions and domains for a few specific types of cryptocurrencies, including security tokens, utility tokens, stablecoins, and exchange tokens. Security tokens and stablecoins will primarily fall under the jurisdiction of the FCA, which mans that anyone that trades them will need authorization from the regulator. Utility tokens will mostly not be covered by the FCA’s regulations, though they will need to be consulted on each new token to determine if it should be considered to be e-money.
Exchange tokens, like Bitcoin, are not going to be regulated at all, but anti-money laundering rules will still need to be followed.
Right now, the regulations are primarily just meant to be the framework to build upon, but commentators have already welcomed these new regulations. CryptoUK, a lobbying and advocacy group for cryptocurrency, released a statement to their members, saying,
“Overall, the changes made provide greater clarity on the areas covered in CryptoUK’s consultation response.”
More specifically, they were happy to see the FCA take their recommendation to add the e-money category for tokens.
The only action with a negative response is the stance is the decision of the FCA to ban the sale of exchange-traded notes (ETNs) and cryptocurrency derivatives to retail customers. CryptoUK stated,
“Our efforts are [now] focused on the current FCA consultation considering the ban of crypto derivatives… later this year.”
Since the FCA doesn’t address every single token query in their new guidance, firms will likely need to still interact with the FCA to eliminate any doubt they may have.
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