FCA Clarifies Crypto Guidelines with New Consultation Paper

The Financial Conduct Authority (FCA) on Wednesday released a consultation paper on Cryptocurrencies Cryptocurrencies By using cryptography, virtual currencies, known as cryptocurrencies, are nearly counterfeit-proof digital currencies that are built on blockchain technology. Comprised of decentralized networks, blockchain technology is not overseen by a central authority.Therefore, cryptocurrencies function in a decentralized nature which theoretically makes them immune to government interference. The term, cryptocurrency derives from the origin of the encryption techniques that are employed to secure the netw By using cryptography, virtual currencies, known as cryptocurrencies, are nearly counterfeit-proof digital currencies that are built on blockchain technology. Comprised of decentralized networks, blockchain technology is not overseen by a central authority.Therefore, cryptocurrencies function in a decentralized nature which theoretically makes them immune to government interference. The term, cryptocurrency derives from the origin of the encryption techniques that are employed to secure the netw Read this Term to clarify its regulatory scope on the industry.

Dubbed “Guidance on Crypto” the consultation paper is an update to similar guidelines published in January this year. The new document was prepared after receiving a total of 92 responses from the industry.

According to the paper, it “aims to give market participants and interested stakeholders clarity on the types of crypto assets that fall within the FCA’s regulatory remit and the resulting obligations on firms and regulatory protections for consumers.”

Clarifying regulatory stance on crypto

The consultation mainly focused on unregulated tokens, regulated tokens, and market observations and clarified the industry players' doubts on the agency’s role in the area.

“The crypto asset market and its underlying Distributed Ledger Technology (DLT) Distributed Ledger Technology (DLT) A distributed ledger or distributed ledger technology (DLT) is a database that is shared and synchronized across a number of different devices in different locations. DLT networks effectively eliminate the need for a centralized authority to act as the network’s custodian. In its place is a Peer-to-Peer (P2P) network as consensus algorithms to ensure replication across nodes is undertaken.The most common kind of distributed ledger network is a blockchain network. Blockchain networks are used to A distributed ledger or distributed ledger technology (DLT) is a database that is shared and synchronized across a number of different devices in different locations. DLT networks effectively eliminate the need for a centralized authority to act as the network’s custodian. In its place is a Peer-to-Peer (P2P) network as consensus algorithms to ensure replication across nodes is undertaken.The most common kind of distributed ledger network is a blockchain network. Blockchain networks are used to Read this Term) is developing quickly, so participants need to be clear on where they are conducting activities that fall within the scope of our regulatory remit and for which they require our authorization,” the paper stated.

The new guidance details the requirements and permissions crypto-related companies deal with to operate within the regulatory frameworks.

It further highlights the consultations on how crypto-asset market participants may be affected by the transposition of the EU Fifth Anti-Money Laundering Directive (5AMLD).

Commenting on the published guidelines, Christopher Woolard, executive director of strategy and competition at the FCA, said: “This is a small, complex and evolving market covering a broad range of activities. Today’s guidance will help clarify which crypto asset activities fall inside our regulatory perimeter.”

The paper also clarified the taxonomy of crypto assets to help market participants better understand whether the tokens are regulated or they fall outside the financial watchdog’s purview.

Earlier this month, the FCA proposed a plan to ban the sale of all crypto derivatives and exchange-traded notes (ETNs) to retail customers, citing these investment instruments were “ill-suited” for retail investors who cannot access the value and risks associated with them.