UK FCA Opens The Consultation Phase Preceding Policy Formulation For Crypto Assets In The Country
The UK Financial Conduct Authority (FCA) issued a statement Wednesday 23 this month revealing an active consultations phase for cryptoassets. Notably, the authority issued a guidance paper that spells out the desired conditions surrounding the consultations. Further, the paper spells out the categories of the cryptoassets as well as their definition.
Three broad categories of cryptoassets
Notably, the FCA classified cryptoassets into three major groups depending on their perceived function, behaviour and key characteristics. In particular, the FCA will recognise cryptoassets as exchange tokens, security tokens or utility tokens. Exchange tokens are the cryptoassets that mainly facilitate transfer of value from one individual to another. These include bitcoin, Litecoin and other altcoins. Since these exchange tokens are not legal tender within the UK, they will not fall under FCA jurisdiction.
On the other hand, security tokens are cryptoassets that take on the characteristics of traditional securities. For instance, the FCA will treat a crypto asset as security if its behaviour and characteristics fall under the Regulated Activities Order (RAO). This is to say that the FCA will treat them as specified investments in the same calibre as debentures or shares. Therefore, it is clear that the FCA has the powers to regulate security tokens.
Finally, utility tokens take on the behaviour of instruments that allow users to access other products or services. However, these kind lack convincing characteristics to pass off either as exchange tokens or security tokens. Further, utility tokens do not satisfy the conditions necessary for classification as e-money.
The categories are not mutually exclusive
“These tokens grant holders access to a current or prospective product or service but do not grant holders rights that are the same as those granted by Specified Investments. Although utility tokens are not Specified Investments, they might meet the definition of e-money in certain circumstances,” the guidance paper reads in part.
According to the statement, the FCA acknowledges that the categories of the cryptoassets are not mutually exclusive. This is to say that a digital asset classified as an exchange token today could qualify for classification as a security token at another time.
Nevertheless, the FCA asserted that exchange tokens are unlikely to enter the e-money category due to lack of official backing. Interestingly, this could imply that stablecoins that have fiat currency backing could qualify as e-money. A further notable development is that the Treasury will publish its consultation paper any time this quarter. The paper will intend to “broaden the FCA's regulatory remit to bring in further types of cryptoassets.”