The UK’s financial watchdog, the Financial Conduct Authority (FCA), has published its final guidance on crypto assets.
The 55-page document is based on feedback the regulator received to consultation paper CP19, which was released for public comments in January.
“The aim of our consultation was to provide clarity on the FCA’s regulatory perimeter for market participants carrying on activities in this area. The cryptoasset market and its underlying distributed ledger technology (DLT) is developing quickly, so participants need to be clear on where they are conducting activities that fall within the scope of our regulatory remit and for which they require our authorisation,” the FCA said.
The regulator received 92 responses to the consultation paper, with most of the respondents, which included large banks, trade associations, token issuers and others, supporting the watchdog’s proposals. The final guidance includes several amendments to the original proposals to reflect this feedback.
Perhaps most importantly, today’s document provides a classification of the different cryptocurrencies. According to the guidance, the FCA recognises three categories of digital currencies: exchange tokens, utility tokens and security tokens.
Under the watchdog’s definition, exchange tokens are “are not issued or backed by any central authority and are intended and designed to be used as a means of exchange”. These includes genuine cryptocurrencies, such as Bitcoin (BTC) and Ether (ETH). The FCA considers such tokens “unregulated”.
The regulator describes utility tokens as digital coins that give their holders access to a product or service, but “do not grant holders rights that are the same as those granted by specified investments”. However, they might meet the definition of e-money, in which case activities involving them might be regulated.
The third category, security tokens, are tokens that provide certain rights and obligations, similarly to more traditional investments such as shares or debt instruments. These tokens fall into the FCA’s regulatory perimeter, the watchdog says.
“Any token that is not a security token, or an e-money token is unregulated. However, market participants should note certain activities that use tokens may nevertheless be regulated, for example, when used to facilitate regulated payments,” the FCA also said.
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