The Financial Conduct Authority (FCA) is consulting on guidance which will set out the cryptoasset activities it regulates.

This is aimed at helping firms understand whether their cryptoasset activities fall under FCA regulation and whether they need to be authorised and have appropriate consumer safeguards in place.

The consultation is in response to industry requests for greater clarity, and to the Cryptoasset Taskforce’s recommendation that the FCA provides guidance on the existing regulatory perimeter.

The Cryptoasset Taskforce report, published in October 2018, laid out a broad overview of the benefits and risks of cryptoassets and distributed ledger technology (DLT), as well as the UK’s policy and regulatory approach.

Christopher Woolard, executive director of strategy and competition at the FCA, commented: “This is a small but growing market and we want both industry and consumers to be clear what is regulated, and what isn’t.”

The regulator noted that an increasing number of consumers are investing in cryptoassets, something which it has already warned should be approached with caution.

“Consumers may be unaware of the limited regulatory protections for cryptoassets services that fall outside the FCA’s regulatory remit, such as the lack of recourse to the Financial Services Compensation Scheme and the Financial Ombudsman Service,” it added.

While the FCA conceded that cryptoassets have the potential to bring benefits to markets, firms and consumers, there remain considerable risks.

Later this year the FCA will consult on banning the sale of derivatives linked to certain types of cryptoassets to retail investors, while the government is planning to consult on whether to expand the regulatory perimeter to include further cryptoasset activities.

The FCA is asking for comments on the consultation paper by 5 April.

Cryptoassets include many different types of products. Some activities fall within the FCA’s regulatory remit, while others do not. The most popular forms of cryptoassets include exchange tokens, or cryptocurrencies, such as Bitcoin and Litecoin. The guidance also covers security tokens and utility tokens.

Steve Davies, PwC’s blockchain leader, said it is clear the FCA is looking to move fast, with final guidance expected in the summer.

"This is understandable as there have been challenges and the paper highlights the potential harms associated with cryptoassets," he stated.

"However, there are also a lot of positives, in particular, tokenisation - the process of converting an asset into tokens which can be transferred, stored or recorded on a blockchain - is set to grow and the UK has an opportunity to play a pivotal role here."

Davies also pointed out that the European Securities and Markets Authority (ESMA) recently suggested some aspects of relevant EU legislation may require amendments to reflect changes in cryptoasset jurisdiction.

Share Story: