Cryptoassets

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:

  • Exchange tokens: Cryptoassets, such as Bitcoin, Litecoin and equivalents, are often referred to as ‘cryptocurrencies’, ‘cryptocoins’ or ‘payment tokens’ and are usually decentralised. Exchange tokens use a DLT platform and are not issued or backed by a central bank or other central authority. 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. These tokens are usually outside the FCA’s regulatory perimeter.  
  • Security tokens: These are tokens that amount to a ‘Specified Investment’ under the Regulated Activities Order (RAO). 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.
  • Utility tokens: These are tokens which can be redeemed for access to a specific product or service that is typically provided using a DLT platform. They typically fall outside the FCA’s regulatory perimeter.

You can find out more about which cryptoasset activities we regulate in CP19/3: Guidance on Cryptoassets. Any firm carrying on a regulated activity will need to be authorised by us. Find out more about the authorisation process.

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.

This includes:

  • 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.

Further support

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.

Publications

Upcoming publications

  • Consumer research on cryptoassets (early 2019)
  • Policy Statement on cryptoassets (in response to CP19/3, summer 2019)
  • Consultation on potentially banning the sale to retail customers of derivatives linked to certain cryptoassets (2019)