UK Financial Regulator Launches Consultation Paper on Crypto, Taking Steps Towards Regulation

The UK’s financial regulator, the Financial Conduct Authority (FCA), has recently launched a consultation paper on cryptoassets, which will set out the cryptocurrency-related activities it regulates, and could lead to a ban sale of crypto derivatives to retail investors.

The consultation paper, titled “Guidance on Cryptoassets,” is looking to provide regulatory clarity for cryptocurrency market participants, with the consultation period set to end on April 5 of this year. After it ends, a statement with financial guidance is set to be released.

The move comes in response to an industry-wide request for greater clarity, and according to CryptoNewsReview to the Cryptoasset Taskforce’s recommendation for additional guidance on existing regulations. In a press release announcing the move, the FCA noted that while the number of consumers investing in cryptoassets is still “relatively small” it has been increasing.

Christopher Woolard, the executive director of Strategy and Competition at the regulator, was quoted as saying:

This is a small but growing market and we want both industry and consumers to be clear what is regulated, and what isn’t. This is vital if consumers are to know what protections they’ll benefit from and in ensuring we have a market functioning as it should.

According to the FCA, the final version of the paper is set to help “market participants understand whether the cryptoassets they use are within the regulatory perimeter.” It added that it should help market participants “better understand whether they need to be authorised and what rules or regulations apply to their business.”

Per the FCA cryptocurrencies could be placed into three potential categories: exchange tokens, security tokens, and utility tokens. The exchange tokens, in the FCA’s eyes, are those that aren’t issued or backed by a central authority, and whose intended use is to be a medium of exchange – like bitcoin.

Security tokens are cryptoassets that would fall under the FCA’s regulations, or that could be seen as “Specified Investments” under the UK’s Regulated Activities Order (RAO). Utility tokens, on the other hand, would be those giving users access to a product or service, without giving them rights over them.

The country’s financial regulator has warned that consumers should approach the cryptocurrency industry with caution, while being “prepared to lose money.” It reportedly explained consumers may be unaware they aren’t protected by the government’s services when it comes to cryptoassets.

Back in October the FCA proposed a ban on the sale of crypto derivatives to retail investors. Per its press release, it will look into banning the sale of these products linked to specific types of cryptocurrencies to retail investors.

The regulator has also noted cryptoassets have the “potential to bring benefits to markets, firms and consumers.” As such, it noted it wants to “encourage innovation in the interest of consumers.”