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UK Policy & Regulatory Approach to Cryptoassets Published

29th October 2018

UK Policy & Regulatory Approach to Cryptoassets Published

As part of the Treasury led Cryptoasset Taskforce, the FCA has today published a report on the UK’s policy and regulatory approach to so called ‘cryptoassets’.

The report has been published, having considered the policy and regulatory implications of distributed ledger technology and cryptoassets. In addition it aims, at a high level, to set out some of the opportunities and risks they they present.

The regulator made it clear that in its view, cryptoassets have no intrinsic value and investors should therefore be prepared to lose all the value they have put in.

It seems that whilst the Taskforce recognises that cryptoassets have the potential to bring benefits to markets, firms and consumers, there still remains the considerable risks that the Treasury, the Bank of England and the FCA will take action to mitigate.

The key risks include:

• Harm to consumers and market integrity
• he use of cryptoassets for illicit activities; and
• Potential future threats to financial stability

So, in order for the Taskforce to mitigate these risks, they have committed to a number of actions, including consulting upon:

• Whether the regulatory perimeter requires extension to capture cryptoassets that have comparable features to specified investments, but currently fall outside the perimeter;
• Perimeter guidance by the end of 2018 to clarify which cryptoassets fall within the existing regulatory perimeter, and those cryptoassets that may fall outside;
• A separate consultation by Q1 2019 on a potential prohibition of the sale to retail consumers of derivatives (including contracts for differences, options, and futures) referencing certain types of cryptoassets;
• Implementing one of the most comprehensive responses globally to the use of cryptoassets for illicit activities by applying and going further than the fifth EU Anti-Money Laundering Directive.

In addition, given the complexity and new challenges presented to traditional forms of financial regulation, it was deemed that more time is needed to consider how regulation can “meaningfully address the risks posed by exchange tokens, such as Bitcoin”.

Thus, the government is looking to issue a consultation early next year to further explore whether and how exchange tokens, and related firms such as exchanges and wallet providers, could be regulated effectively.

Market developments will continue to be monitored by the authorities and hey will continue their work with their international counterparts in order to consider appropriate domestic and more global responses.

Read our latest articles, news and views affecting compliance and regulation in the UK Financial Services Industry.