Cryptoassets such as Bitcoin and Litecoin have been on the radar of the Financial Conduct Authority (FCA) for some time. The FCA has urged consumers to be cautious and has recently published useful guidance on cryptoassets and regulatory issues.
Cryptoassets (also known as cryptocurrencies) are increasingly common thanks to new technologies allowing people to hold them digitally as investments. However, investing in cryptoassets can be is risky.
The FCA’s guidance, Policy Statement 19/22: Guidance on Cryptoassets, is the regulator’s attempt to provide “regulatory clarity” and better protection to market participants by alerting them to the important issues and helping them understand what regulations apply to them. It is aimed at firms who issue, create, market, buy or sell, hold or store cryptoassets; as well as financial advisers, professional advisers and investment managers and others.
The guidance could also be a pre-cursor to potential new legislation and regulations around cryptocurrencies. At the beginning of 2019, the FCA created a framework categorising cryptoassets based on their intrinsic structure and their designed use (they are either regulated or unregulated). It also warned of the risks, for instance, from cybercrime, fraud and financial instability.
In its guidance, the FCA acknowledges how fast the cryptoasset market and the underlying technology are developing. This means market participants need clarity on where they are conducting activities falling under the FCA’s regulatory remit for which they require authorisation; and the extent of their regulatory obligations.
Cryptocurrency tokens may, for instance, be specified investments under the Regulated Activities Order or e-money under the E-Money Regulations – or they may be unregulated (mainly exchange tokens and utility tokens). The guidance makes clear that firms carrying on certain specified activities in relation to cryptoassets in the UK must get appropriate authorisation from the FCA. Consumers should be able to identify whether a cryptoasset is regulated.
What does this mean?
Firms in the finance sector should ensure they are familiar with the guidance and what it means for their practice. Note that the regulator makes clear that market participants are expected to take the guidance into account when carrying on business in the UK. The guidance is not binding on the courts but it may be a persuasive factor when deciding disputes.