FCA sets own course on cryptoasset regulation

The regulator said it will treat firms that comply with its guidance as having complied with the underlying rules and regulations that apply, and added that compliance with its guidance could also be a "persuasive factor" to courts considering disputes over cryptoasset contracts.

The finalised guidance contains a number of significant changes to the draft version the FCA consulted on earlier this year. This includes a broad re-categorisation of the different types of cryptoassets in the market for the purposes of providing regulatory clarity.

According to the FCA, there are two forms of cryptoassets that are subject to regulation. These are 'security tokens', which convey characteristics that can qualify them as shares, debentures or other 'specified investments' and are regulated as such, and 'e-money tokens', which are to be treated as subject to e-money legislation and can include so-called 'stablecoins'.

There are also 'unregulated tokens', which fall outside the scope of UK regulation, the FCA said. This category incorporates tokens intended and designed to be used as a means of exchange, including for buying and selling goods and services directly without intermediaries being involved, and 'utility tokens', which the FCA previously said "grant holders access to a current or prospective product or service but do not grant holders rights that are the same as those granted by specified investments".

By "repositioning the cryptoasset taxonomy" the FCA has significantly diverged from the regulatory approach adopted by the European Banking Authority (EBA) and regulators in other jurisdictions too, said Rory Copeland, a specialist in cryptoasset regulation at Pinsent Masons, the law firm behind Out-Law. A Pinsent Masons report published earlier this year highlighted regulatory developments impacting the cryptoasset market in the past year across the world, with regulators in Japan, Singapore, Switzerland and the US, as well as in the UK, France and EU more generally, among those to have addressed the topic.

"A clear distinction is made between stablecoins and exchange tokens, which the FCA has said are not regulated categories, and e-money tokens which fall within the scope of the Electronic Money Regulations," Copeland said.

The FCA's confirmation that so-called 'exchange tokens' fall outside the scope of regulation will be welcomed by businesses in the payments market, Copeland said.

"Many banks, settlement associations and enterprise blockchains will be elated at the guidance that the use of exchange tokens as a remittance vehicle does not bring them within the regulatory perimeter," Copeland said. "This provides opportunities for more innovation in blockchain cross-border settlement systems. That said, such systems must not be directly accessible to consumers."

In its guidance, though, the FCA explained that platforms facilitating the exchange of cryptoassets will face obligations under anti-money laundering laws.

"Whilst the FCA made clear that exchange tokens do not fall within their remit under the Financial Services and Markets Act, the guidance includes a reminder that the fifth EU anti-money laundering directive will apply to cryptoassets exchanges, and so will extend the FCA mandate to cover a range of activities related to exchange tokens. The true picture of businesses may not, therefore, become fully clear until 10 January 2020, the date by which the EU directive must be transposed into UK law," Copeland said.