Sushil Kuner
Principal Associate
UK Financial Services Regulation
Head of UK FinTech Accelerator
Article
7
The Financial Conduct Authority (FCA) has published its Consultation Paper (CP19/3: Guidance on Cryptoassets) which sets out guidance on how cryptoassets can be subject to FCA regulation. Our Financial Services Regulatory experts summarise the FCA's expectations and highlight the key considerations for firms.
The Guidance seeks to clarify where different categories of cryptoasset tokens fall in relation to the FCA's regulatory perimeter, i.e. the boundary that separates regulated and unregulated financial services activities. Activities which fall within the regulatory perimeter are regulated and require authorisation from the FCA, and in limited circumstances the Prudential Regulation Authority, before they can be carried out. Carrying out regulated activities without the relevant authorisations may constitute a criminal offence.
The FCA recognises three types of cryptoassets which it has described as follows:
The FCA has made clear that the above tokens are not mutually exclusive, nor are they exhaustive of the types of cryptoassets that can exist. Whether a cryptoasset falls within the regulatory perimeter should always be considered on a case-by-case basis with regard to a number of different factors.
The FCA has highlighted that activities involving tokens which include characteristics of 'Specified Investments' such as shares or debt instruments (types of security), may require FCA authorisation. It has set out a non-exhaustive list of factors that it considers are indicative of a security:
If you engage in activity by way of business in the UK, that relates to a Security Token or to a token that constitutes e-money or is involved in payment services, you should consider whether those activities require authorisation.
If a token is a transferable security and will either be offered to the public in the UK or admitted to trading on a regulated market, an issuer will need to publish a prospectus in accordance with the UK's Prospectus Regime unless an exemption applies.
If your activities fall within the FCA's regulatory perimeter, you should consider, in particular:
The FCA's Guidance is relevant to:
Firms have until Friday 5 April 2019 to respond to the FCA's consultation. Firms can do so by emailing fcacrypto@fca.org.uk
The FCA will consider feedback received before publishing its final Guidance on the existing regulatory perimeter in relation to cryptoassets this Summer.
If you think you are impacted but are unsure whether your activities fall within the FCA's regulatory perimeter, get in touch with one of our Financial Services Regulatory experts.
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