We are carrying out work on cryptoassets to ensure that consumers are protected, market integrity is upheld, and that competition works in the interest of consumers.
How we define cryptoassets
Cryptoassets are cryptographically secured digital representations of value or contractual rights that use some type of distributed ledger technology (DLT) and can be transferred, stored or traded electronically.
We have created a framework by categorising cryptoassets based on their intrinsic structure, as well as their designed use:
- Security tokens: These are tokens that amount to a ‘Specified Investment’ under the Regulated Activities Order (RAO), excluding e-money. These may provide rights such as ownership, repayment of a specific sum of money, or entitlement to a share in future profits. They may also be transferable securities or other financial instrument under the EU’s Markets in Financial Instruments Directive II (MiFID II). These tokens are likely to be inside the FCA’s regulatory perimeter.
- E-money tokens: These are tokens that meet the definition of e-money under the Electronic Money Regulations (EMRs). These tokens fall within regulation.
- Any tokens that are not security tokens or e-money tokens are unregulated tokens. This category includes utility tokens which can be redeemed for access to a specific product or service that is typically provided using a DLT platform.
- The category also includes tokens such as Bitcoin, Litecoin and equivalents, and often referred to as ‘cryptocurrencies’, ‘cryptocoins’ or ‘payment tokens’. These tokens are usually decentralised and designed to be used primarily as a medium of exchange. We sometimes refer to them as exchange tokens and they do not provide the types of rights or access provided by security or utility tokens, but are used as a means of exchange or for investment.
You can find out more about which cryptoasset activities we regulate in PS19/22: Guidance on Cryptoassets. Any firm carrying on a regulated activity will need to be authorised by us. Find out more about the authorisation process.
Investment products that reference cryptoassets
While some cryptoassets are outside the FCA’s perimeter, investment products such as derivatives contracts that reference these cryptoassets are likely to be within our perimeter, as we have previously stated.
Due to our concerns about the ability of retail consumers to reliably value and assess the risks of investing in such products, we have proposed a potential prohibition on the sale of derivatives and exchange traded notes referencing cryptoassets in CP19/22. The consultation period is open until 3 October 2019.
If we decided to proceed with these measures, we would expect to publish a Policy Statement and final rules in early 2020.
The UK Cryptoasset Taskforce
The UK Government announced the Taskforce in March 2018 as part of its wider Fintech strategy and in response to the Treasury Select Committee’s investigation into digital currencies. The objective of the Taskforce was to bring Her Majesty’s Treasury (HMT), Bank of England (BoE) and the Financial Conduct Authority (FCA) together to assess the potential impact of cryptoassets and DLT in the UK and to consider appropriate policy responses. The Taskforce published its report on 26th October 2018.
The Taskforce concluded that while DLT is at an early stage of development, it has the potential to deliver significant benefits in financial services and other sectors in the future, and all three authorities committed to supporting its development. This is in line with previous statements made by the FCA. The Taskforce also saw some evidence that certain types of cryptoassets have the potential to deliver benefits in the future, for example when used as an innovative capital raising tool or as an intermediary step for international money transfers; but noted that harnessing these potential benefits requires effective action to manage the range of risks observed in the current cryptoasset market.
- Risks of financial crime, including opportunities for cryptoassets to be used for illicit activity and cyber threats.
- Risks to consumers, who may buy unsuitable products, face large losses, be exposed to fraudulent activity, struggle to access market services, or be exposed to the failings of service providers.
- Risks to market integrity, which may lead to consumer losses or damage confidence in the market.
- Potential implications for financial stability, which may arise if the market grows and cryptoassets are more widely used.
If you are a firm looking to develop innovative propositions using cryptoassets, we may be able to offer support via our Innovate function.
FCA Innovate is an initiative that aims to enable innovation in the interest of consumers using 6 different types of services including: Direct Support, Regulatory Sandbox, Advice Unit, Green FinTech challenge, RegTech and Engagement.
Innovate has interacted with a significant number of cryptoasset related business models, primarily through its sandbox and direct support functions. Find out more about Innovate.
- PS19/22: Guidance on Cryptoassets
- CP19/22: Restricting the sale to retail clients of investment products that reference cryptoassets, July 2019
- CP19/3: Guidance on Cryptoassets (PDF)
- Discussion Paper on Distributed Ledger Technology
- Feedback Statement on Distributed Ledger Technology
- Cryptoasset Taskforce Report
- Consumer research on cryptoassets, March 2019
- Policy Statement on cryptoassets (in response to CP19/3, summer 2019)