UK Government and FCA Respond to Treasury Select Committee's Cryptoassets Report

Avi Rosten

The UK Government and UK financial regulatory body - the FCA (Financial Conduct Authority) - have released their responses to September’s Treasury Select Committee report on cryptoassets.

The responses from the two bodies broadly agree with the content of October’s Cryptoassets Taskforce report, emphasizing the importance of consumer protection and market integrity, and the need for regulatory bodies to limit the potential for illicit activity with digital assets.

The Government was keen to reiterate however, that it:

Recognises the potential presented by DLT and considers that, while there is limited evidence of the current generation of cryptoassets delivering benefits, this may change in the future.

The report and responses come ahead of the Govermnent’s plans next year to formally explore expanding regulation to cover other cryptoassets, security tokens and “related firms such as exchanges and wallet providers.”

The Government added that it will address the criminal risks associated with cryptoassets “by going significantly beyond” the European Union’s Fifth Anti-Money Laundering Directive.

“Exchange Tokens” vs. Currency

Interestingly, the FCA agreed with the Taskforce report’s taxonomy of digital assets, making a clear distinction between bitcoin (and other cryptocurrencies) and currency:

Exchange tokens - which are often referred to- incorrectly in my view- as ‘cryptocurrencies’, such as Bitcoin, Litecoin and equivalents. They utilise a distributed ledger technology platform and are not issued or backed by a central bank or other central body. 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. We do not believe that they constitute money or currency.

The FCA also commented that they have committed to investigating the prohibition of crypto-derivatives sales, explaining that it will:

Consult on a prohibition of the sale of all derivatives referencing exchange tokens like Bitcoin to retail consumers. We are concerned that retail consumers are purchasing complex, volatile and often leveraged derivatives products based on exchange tokens.