The “crypto” in cryptoasset ultimately derives from the Greek word κρυπτος, meaning hidden. This may seem fitting when there is little widespread understanding of cryptoassets (including cryptocurrencies like Bitcoin and Litecoin and other forms of digital tokens which store value or rights), how they work and how they are regulated. It is important to note, however, that the root is not the same as that of “corrupt” (from the Latin (co)rumpere, since you ask), even if investors in fraudulent initial coin offerings might be surprised at that fact.
The fact that there is a gap in understanding hides the fact that Cryptoassets can be beneficial. Indeed, an ever-increasing number of interesting businesses, which rely on cryptoassets either for funding or as part of their business model, are seeking to show this from a commercial point of view. However, existing uncertainty as to precisely what a cryptoasset is, and how an investor might be protected against the risks inherent in investing in one, is doing nothing to remove any of the mystique or wariness.
In this context, the FCA’s consultation “Guidance on Cryptoassets” (CP19/3) is to be welcomed. While it is still proposed that new rules specifically related to one or more types of cryptoassets will be consulted on later in the year, CP19/3 seeks to provide clarity on the application to cryptoassets of the regulatory regime as it exists now. Certainty is always helpful for market participants (and their regulatory advisors), so the FCA attempting to shine a light into the darkness in this area is a positive development.
Whether or not the industry agrees with the FCA’s interpretation is another matter. It will be interesting to see what responses the FCA receives to the consultation and any firm which uses, or is contemplating using, cryptoassets in any way in its business should read the consultation and provide comments on any elements it disagrees with.