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FCA Issues New Crypto Classification Guidelines

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FCA Issues New Crypto Classification Guidelines

Crypto investors in the UK got some clarification this month from the country's Financial Conduct Authority (FCA) in regards to how to classify their cryptocurrency. The firm released an updated crypto classification guide after an outcry from blockchain businesses seeking more transparency in the industry.

FCA Token Classification

Token classification continues to be a hot button issue across the globe. Businesses want more transparency as to how governments categorize digital assets. Speaking on this desire, the FCA Executive Director of Strategy and Competition, Christopher Woolard, took a moment to explain recent developments in the cryptocommunity. He also spoke briefly on why it’s important that the UK takes the reins of this budding business sector.

Major Win for Bitcoin

The new crypto guidance document differentiates Bitcoin and other true cryptocurrencies from their counterparts. Under the new regulations, these tokens fall under the utility token class. In essence, utility tokens remain untouched by the guidance. These tokens operate within a digital ecosystem to facilitate the transfer of data, value, or a host of other digital processes.

According to the rules, utility tokens can be issued freely. The only exception would be when these tokens function as a form of electronic money. Basically, when a utility token facilitates payments. Aside from that scenario, Anti-Money Laundering laws apply.

Specified Investment

The rise of the security token market is part of the main reasons the FCA instituted the guidance.  Any token that operates as a share, ownership rights or a debt instrument falls into this category. Unlike utility tokens, security tokens fall under a host of regulatory standards.

UK FCA via Financial Times

UK FCA via Financial Times

Full support

Businesses in the security token sector applauded the maneuver. The guidance gives these firms the green light to further their operations in the UK. Up until this point, major investment firms were on the fence about backing these technologically superior crowdfunding strategies due to fear of reprisal from the FCA. Now, token launch platforms have a clear path to execute their goals while remaining compliant.

Stable coins

Another important token classification that FCA guidance touched mentions is stable coins. These tokens are unique because they are tethered to some form of fiat money. The FCA states that stable coins may fall under their jurisdiction depending on their specific use.

Case by Case Basis

The new guidance clarifies that firms can issue tokens without a license, but if the shares are traded or handled by brokers, regulatory approval must be sought out prior to the issuance. It also lets businesses know that the FCA has the right to examine each token issuance on a case-by-case basis.

FCA New Crypto Rules

Most of the updated rulings in the guidance first appeared in the consultation paper CP19. The paper, released in January, helped regulators to feel out the market and adjust the guidance accordingly.

Firms Respond to FCA

According to the FCA, most of the 92 responses to the document are positive in nature. The support comes from a host of blockchain-based businesses that can now continue operations across the UK with confidence. The FCA made a smart move releasing the document which is sure to spur further blockchain investment across the country.

David Hamilton is a full-time journalist and a long-time bitcoinist. He specializes in writing articles on the blockchain. His articles have been published in multiple bitcoin publications including