The United Kingdom through its Financial Conduct Authority (FCA) is consulting on ‘Guidance’ for cryptoassets to provide regulatory clarity. The FCA acknowledges cryptoasset market and the quickly developing distributed ledger technology (DLT), and it wants to support consumers to understand the cryptoasset market.
It said the final ‘Guidance’ will help market participants understand whether the cryptoassets they employ are within the regulatory perimeter. “This will alert market participants to pertinent issues and help them better understand whether they need to be authorized and what rules or regulations apply to their business.”
The FCA said the ‘Guidance’ represents their views and the courts are not bound to it, however, it can be persuasive in any determination by courts, such as enforcing contracts. According to the FCA’s Consultation Paper, the authority is working towards a enhanced market integrity and promoting effective competition in the interest of the consumers.
The Consultation Paper goes onto describe cryptoassets as a cryptographically secured digital representation of value or contractual rights that is powered by forms of DLT which can be stored, transferred and traded electronically. It further categorizes cryptoassets into three types of tokens:
- Exchange Tokens – not issued and backed by any central authority and are intended and designed as a means of exchange. Its a decentralized tool for exchange (buying and selling) of goods and services without traditional intermediaries
- Security Tokens – have specific characteristics, meaning they meet the definition of a Specified Investment like a share or a debt instrument and are within the perimeter.
- Utility Tokens – through these, users have access to a current or prospective product or service. It might meet the definition of e-money in certain circumstances.
Given the complexities, the FCA came up with a framework which elaborates the usage of cryptoassets as a means of exchange, investment and capital raising or creation of decentralized networks.
UK has noted a growth in the number of exchanges and utility tokens. Currently, there are over 2000 exchange and utility tokens, and these numbers are expected to grow with the rapidly changing nature of the market.