The British Financial Conduct Authority (FCA) has published updated guidelines on the regulatory status quo of Bitcoin & Co. In it, the Financial Regulator has taken into account the feedback from market participants who participated in a consultation that began in January. Accordingly, pure crypto-exchanges can relax as well as the issuers of utility tokens who do not fulfill the definition of e-money.
The Financial Services Authority (FCA) has issued new guidelines for the regulation of Bitcoin & Co. In it, the FCA clarifies the (crypto) market participants, among other things, on which types of tokens – from utility token to security token – are affected by a regulation and which are not. The publication of the position paper was preceded by a consultation process lasting several months, during which industry members informed the Authority of their questions and suggestions.
In the previous consultation paper, the FCA distinguished between three different classes of crypto assets: exchange tokens, utility tokens, and security tokens.
“Pure” Cryptocurrencies [“Exchange Tokens”]
Crypto-tokens whose function is solely in their use as a means of payment are outside the area of responsibility of the FCA. Among other things, it is important that there is no central issuer and that no (enjoyment) rights are associated with the ownership of the token.
Good, if not new news for pure crypto exchanges, because:
This means that market participants such as crypto exchanges, which only offer a platform for trading in stock tokens (such as Bitcoin), are outside our remit.
A majority of respondents shared this assessment by the FCA. Some, however, expressed concerns about consumer protection. For others, there was also a need for clarification on how the FCA distinguishes pure cryptocurrencies from utility tokens.
The FCA is well aware that most crypto currencies on the secondary market are traded with speculative intent. However, this fact alone does not make Bitcoin & Co. an investment within the meaning of the FCA definition of a ” Specified Investment “.
We are aware that exchange tokens are acquired and held for speculative purposes [[…] but we do not believe that this is sufficient for exchange tokens to represent a […] investment. The analogy would be a person holding various Fiat currencies or a commodity, both unregulated, in the hope of making a profit.
Utility Token: FCA is improving
As a utility token, the FCA defines those crypto-tokens that “give owners access to a current or potential product or service,” without, however, granting the holders the same rights that are typically associated with investments as defined by the FCA.
However, the FCA explicitly states that utility tokens can meet the definition of e-money – and thus require regulation:
Although utility tokens are not specified investments, under certain circumstances they may conform to the definition of e-money (as well as other tokens). In this case, the activities concerned can be regulated.
This definition also met with approval from a majority of respondents. Three out of four respondents shared the FCA’s view that only utility tokens that act as e-money need regulation. Again, there were some skeptics who demanded a general regulation of utility tokens.
The FCA has heard calls for a clearer distinction of the utility tokens from the Exchange tokens and – at least a little – improved the definitions of the consultation paper.
Based on the answers, we will continue with the guidelines we have consulted and make changes to clarify the distinction between the categories of crypto-assets.
The new taxonomy of FCA now differentiates between security tokens, e-money tokens and unregulated tokens.
The agency follows the widespread definition of security tokens as digitally securitized securities. They grant their owners rights comparable to those of investing in a classic investment.
The security tokens include tokens that grant the holders part or all of the rights assigned to the shareholders or borrowers, as well as tokens that grant rights to other tokens that are self-specified investments. [[…] ecurity tokens are securities because they grant certain rights in connection with traditional securities.
Security Tokens – you might already suspect – fall into the domain of the FCA as well as tokens that fulfill the definition of e-money.
FCA sees crypto derivatives critically
While the FCA sees no immediate need for action on pure exchange or utility tokens without e-money character, the agency announced earlier this month a ban on crypto-related derivatives . These include contracts for difference, binary options and futures.
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