In December, the U.K Financial Conduct Authority (FCA) promised to step up efforts to regulate crypto-assets and just at the start of the new year, it has taken a significant first step in that direction.
Today, the regulators released a consultation paper in which it proposed three classifications for the different kinds of cryptocurrencies in existence. The purpose of the new document is to “help market participants to understand whether the crypto assets they use are within the regulatory perimeter.”
The Three Classification of Cryptocurrencies By U.K Financial Conduct Authority (FCA)
Cryptocurrencies such as Bitcoin and Litecoin were classified in the guidance paper as “exchange tokens” because they are “not issued or backed by any central authority and are intended and designed to be used as a means of exchange.” For this reason, the FCA says this type of cryptocurrencies does not fall under its watch but could come under the Payment Services Regulations.
Cryptocurrencies such as “security tokens” issued by ICOs to raise funds for their project was classified as security tokens since they have the same features as traditional financial instruments. On this basis, the regulators suggest that they fall under the Regulated Activities Order (RAO) which they oversee.
Cryptocurrencies that serve as “utility tokens” by granting users access to certain features on a platform are those the regulators believe do not fall into any regulatory regime at the moment. However, they state that stablecoins will fall under e-money if they are only for transactional purposes or count as securities if they are backed by specific assets.
In a separate statement, FCA’s Executive Director of Strategy and Competition shared his thoughts about the newly proposed definitions and expressed confidence that it will benefit industry participants. He said,
“This is a small but growing market, and we want both industry and consumers to be clear what is regulated, and what isn’t. This is vital if consumers are to know what protections they’ll benefit from and in ensuring we have a market functioning as it should.”
The FCA has set an April 5, 2019 deadline as the final day for public comment on the proposed guidelines. If things go as planned, the FCA will release a policy statement confirming the enactment of the new definitions at the end of the consultation period.