The 31 July 2019 FCA policy statement PS19/22 : Guidance on Cryptoassets sets out the FCA’s final guidance on whether dealings involving cryptoassets require authorisation under FSMA. Broadly speaking, the FCA considers that exchange tokens (e.g. Bitcoin) and utility tokens usually will not, and security tokens and e-money tokens usually will. It notes that “stablecoins” may or may not be “e-money” or “security tokens”, but could be derivatives, units in a collective investment scheme, debt securities or some other type of specified investment. (tokens backed by real currencies, like Facebook’s “Libra” proposal, or the value of which is stabilised in some other way). It gives an overview of different categories of market participants and activities they typically carry out, which are likely to be subject to regulation (e.g. the Prospectus Regulation) or otherwise require authorisation eg advising on investments, dealing, arranging, operating an OTF or MTF, safeguarding and administering crypto investments etc. FCA guidance is not legally binding but compliance by a firm with it usually provides a safe harbour as regards compliance with the legal requirements. The FCA reminds us that it intends to gold plate the UK’s implementation of the Fifth Anti-Money Laundering Directive by extending it to cover ICOs and the transfer etc. of cryptoassets.

And in a similar vein, July’s FMLC paper on ICOs is a fairly useful review of the legal position, mainly in the UK and EU but touching on the US too. ICO is not a term of science, and before you can consider the usual questions that arise, e.g. (a) whether the offering is subject to rules about public offers (e.g. the Prospectus Regulation) – especially since the usual bond issue exemptions, such as for issues to professionals, minimum face amount and so on, probably would not apply since ICOs are typically not designed to take advantage of them), (b) do rules on participation in investment activities apply (e.g. in the UK, under FSMA and the Regulated Activities Order, and MIFID II in the EU) and (c) whether buyers are protected by consumer protection laws, and whether the “coins” in question are electronic money, you have to read the documentation to see what the created rights actually are. Readers know there have been various reports on the status of ICOs and the coins or tokens that arise from them (e.g. ESMA’s useful 49-page “Advice on ICOs and crypto-assets”, and the EBA report on the Electronic Money Directive and the Payment Services Directive in the context of cryptoasset wallets and cryptoasset trading platforms, and, longer ago, the UK Cryptoassets Taskforce October 2018 report). The FMLC follows ESMA in noting that cryptoassets come in various forms. Some are intended to be currencies (like Bitcoin, or Facebook’s recently-touted “Libra” concept), some are effectively payments in advance for goods or services (“tokens”), others are equity-like investments, including some profit-sharing entitlement, and then there are hybrids of some or all of these. Whether your “token” or “coin” is a security or an investment in any particular case depends on what the issue contracts say. The law can be a trap for the unwary here: readers may remember the SEC announcing action in relation to an US ICO which the SEC claims should have been, but was not, registered in accordance with section 5 of the US Securities Act 1933). In January, ESMA recommended more regulation, and the FMLC does too, particularly to ensure that buyers of coins and tokens are not left without protection.