U.K. Financial Conduct Authority Publishes Crypto Regulation Guidance

UK Financial Conduct Authority cryptocurrency crypto regulation bitcoin blockchain

The U.K.’s financial regulator has published finalized guidance on the regulation of cryptocurrencies under its remit, providing essential clarification for crypto traders and businesses.

The Financial Conduct Authority, which is responsible for regulating financial services and markets in the U.K., published its final rules today, adopting the majority of the provisions previously published in its consultation paper CP19.

Following a public consultation period that solicited some 92 responses, the guidance stops short of any radical changes in regulation, instead choosing to clarify the tests for different types of digital assets, and when they might fall under its regulatory remit.

According to the guidance, “true” cryptocurrencies such as bitcoin and ether are regarded as unregulated and out of scope for the regulator, though the requirement for anti-money laundering processes for operators remains unchanged.

Crucially, the guidance also defines “security tokens” as distinct from unregulated “exchange tokens” such as bitcoin. These tokens are treated like shares or debt instruments, bringing them within the scope of the FCA’s regulatory remit.

Utility tokens are also to be classed as exempt, apart from specific circumstances in which they constitute e-money, according to the definition of the regulator. In this case, they are to be regulated as a distinct asset class known as “e-money tokens.”

Summarizing the position, the guidance says that while cryptocurrencies remain unregulated by default, activities around cryptocurrency applications may still be subject to regulation.

“Any token that is not a security token or an e-money token is unregulated. However, market participants should note certain activities that use tokens may nevertheless be regulated, for example, when used to facilitate regulated payments.”

The guidance suggests that some stablecoins will fall within the regulator’s remit, but only in instances where the e-money definition is satisfied.

The publication has been welcomed by the crypto sector in the U.K., as final clarity from the regulator on how it sees its role in regulating cryptocurrencies.

However, the regulator highlighted that regulation would ultimately continue to be judged on a case-by-case basis.

“Market participants should use the guidance as the first step in understanding how they should treat certain crypto assets, however definitive judgments can only be made on a case-by-case basis.”