Banking alert – UK watchdog provides final guidance on current cryptoassets regulation

The Financial Conduct Authority (FCA) recently published its Final Guidance, setting the regulatory perimeter of crypto currency asset activities. This comes as a result of the consultation paper released at the beginning of the year. The aim of the Guidelines is to enhance clarity and transparency for market participants involved in the cryptoassets environment.

Taking into consideration the complexity and rapid development of the crypto market, the FCA Guidelines offer a better understanding of the categories of assets that fall within the regulatory perimeter, or with respect to the actions to be undertaken to ensure compliance.

The policy is relevant to the following market players: firms issuing or creating cryptoassets, firms marketing cryptoasset products and services, firms buying or selling cryptoassets, firms holding or storing cryptoassets, professional advisers, investment managers, recognised investment exchanges, multi-lateral trading facilities and organised trading facilities, consumers and consumer organisations.

The Guidelines provide, amongst other, clarifications and definitions of various digital assets, such as:

1. Exchange tokens – cryptocurrencies (eg. Bitcoin and Ehtereum) which are not regulated, but should be compliant with AML regulations;

2. Security tokens – act as shares/ debt securities. They have ownership rights attached and fall under the remit of FCA; 3.

Utility tokens – does not fall under FCA remit, unless they act as electronic money;

4. Stablecoin – some categories of stablecoins fall under the definition of e-money, hence, fall under the FCA’s control.

While firms may not require permissions for conducting an activity involving an unregulated cryptoasset (e.g. utility or exchange token), some FCA rules may still apply. The FCA highlights that rules such as the Principles for Businesses and the Senior Managers and Certification Regime (SMCR) may still apply to the unregulated activity.

There are three main objectives of the Guidelines:

1. Consumer protection harms The policy supports customers in identifying whether firms they are dealing with have the appropriate permission for the regulated activities they are undertaking. Consumers should be aware and understand the risks involved with investing in cryptoassets.

2. Market integrity harms The Guidelines increase transparency and provide clarity on the regulatory perimeter of the FCA. This comes as a result to the general concerns raised regarding market integrity, manipulation and insider trading of cryptoasset markets.

3. Competition harms Legal uncertainty should be decreased, aiming to attract more participants to the market and hence, increase competition amongst consumers.

The regulator recommends that the guidance be used as a starting point for market participants in acknowledging how to treat specific cryptoassets, nevertheless, the final decision with respect to the regulatory requirements to be applied would be taken on a case-by-case basis.