UK regulatory authority moves for clarification on cryptocurrency regulation

The Financial Conduct Authority [FCA], the primary financial regulator of the United Kingdom released a ‘consultation paper’ on 23 January titled, “Guidance on Cryptoassets,” which aims to clarify the picture of cryptocurrency regulation in the country.

Public feedback will be welcomed by the FCA, to better gauge the regulatory requirements of the masses before their consultation phase closes on April 5, following which the regulatory authority will make a decision on the legal definition of cryptocurrencies.

Blockchain, the underlying technology that powers the cryptocurrency industry is constantly evolving and governments have to keep up with the same in order to enforce better regulation. The FCA highlighted the same in seeking regulatory clarity through this open-consultation approach.

The FCA stated:

“We are consulting on Guidance for crypto assets to provide regulatory clarity for market participants carrying on activities in this space. The crypto asset market, and the underlying DLT technology, is developing quickly and participants need to be clear on where they are conducting activities that fall within the scope of the FCA’s regulatory remit and for which they require authorisation.”

This consultation paper aims to cover cryptocurrencies as specified investments, financial instruments, E-Money, and items captured under the payment services regulations stated the FCA.

Cryptocurrencies have always operated in a regulatory grey area. This paper and the feedback it will provide will herald legal clarity and is an important step to promote fair government regulation on cryptocurrencies.

The FCA also clears the details by differentiating between “exchange tokens,” “security tokens,” and “utility tokens.” Firstly, exchange tokens, the regulatory authority specifies, includes cryptocurrencies like Bitcoin, Ethereum, Litecoin, and others. Secondly, security tokens, include royalty streams, tokenized equity and more.

Security tokens are characterized by ownership rights, repayment clauses, and the holders may be entitled to a share in the future profits. Thirdly, utility tokens can be redeemed by the holder for seeking access to a specific product or service that is usually powered by decentralized technology.

According to the chief legal officer at Blockchain, Marco Santori, the top regulator in the UK does not have the regulatory authority over utility tokens, as they do not have the characteristics of security tokens, which are under the FCA’s purview.

A 10-week consultation period is set for the public to send in their feedback, which is set to conclude in April, following which the final text will be released by the regulator in the Summer of this year.

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