The UK Financial Conduct Authority (FCA) released its crypto guidance recently in an attempt to help investors and entrepreneurs better understand the categorization and regulation of crypto assets. Officially released on July 31, the FCA document provides the framework for a more robust regulatory climate in the UK market.
Many in the cryptocommunity see this framework as a necessity to further blockchain adoption in the financial markets. Recognizing this demand, the FCA shed some light on the current UK crypto space.
Important to All UK Blockchain Investors
Importantly, the FCA guidance is relevant to anyone engaging is the issuance, development, marketing, sales, storing, or trading of crypto assets. Moving forward, anyone carrying out regulated activities must get authorization from the FCA, or face legal and financial ramifications.
In a statement, the FCA said the regulations were closely based on the current Canadian regulations put in place by the Canadian Securities Administration (CSA) back in August 2017 via a staff notice. Not surprisingly, the CSA's approach to security tokens is similar to the SEC.
For example, the guidance includes a near replica of the SEC's Howie Test to help businesses and investors determine if they are engaging in activities which fall under securities regulations. Basically, regulators require you to follow strict guidelines if your investment token falls under these categories:
- An Investment of Money
- In a Common Enterprise
- Expectation of Profit
- Requires the Efforts of Others
The new guidance falls under the UK Financial Services and Market Act 2000 FSMA. The document lists requirements and obligations associated with certain crypto assets. It also breaks down these assets into three main categories
Security Tokens – Crypto Guidance
For the most part, the FCA states that nearly all tokenized financial investments fall under the updated tokenized securities regulations. For example, digital assets such as tokenized shares, warrants, rights to or interests in investments, debt instruments, and certificates representing securities all fall under the new regulations.
Interestingly, crypto payment services now fall under UK Payment Services Regulation 2017. E-money is described as any tokens used by money transfer businesses to store monetary value for the purpose of transferring funds or payment transactions. This category also includes fiat money stored on various online wallets or prepaid cards.
The guidance also helps investors determine what tokens are free from regulations. As expected, the FCA drew a difference betweeen utility and security tokens. Notably, both utility and exchange tokens are not to be regulated at this time.
Crypto Guidance on T0ken Issuers
Another interesting point found in the guidance is that token issuers do not need to obtain any special licensing to issue or distribute tokens. These firms must only meet certain prospectus requirements depending on the token type.
The guidance also discussed the use of stable coins. Stable coins are tokens pegged to some other real asset, usually, fiat currency. Tether is an example of a stable coin. The guidance states that the use case of a particular stable coin determines what category it falls under. Basically, if other rights are granted to the token holder, it can be considered a security. Likewise, if used to transfer funds globally, these tokens can fall under the e-money category as well.
UK Investors Welcome the Crypto Guidance
The UK continues to be a crypto hot spot. These regulations are meant to help spur further investment into the regions blockchain sector. You can expect to see other European nations follow suit in the coming months.