The FCA has taken positive first steps in long cryptoasset regulation journey

Reuben Karuna-Nidhi, UK managing principal, Capco

Any UK business conducting cryptoasset related activities will have to register with the FCA by today or cease trading in 2021. This represents the culmination of four years’ work by the FCA to ensure the cryptomarket – which is rapidly growing as highlighted by FCA research released today – is properly regulated while ensuring innovation is not stifled.

“The FCA’s UK cryptoasset taskforce published its final report in 2018, but since then the market and the products available to consumers have continued to evolve. In addition, the challenge for the regulator has been to ensure that its goal of increased financial inclusion for consumers is not constrained by the need to ensure cryptoasset exchanges do not become easy vehicles for global money laundering.

“While the UK has been slower than other countries in implementing regulatory rules, the FCA has been smart in utilising its regulatory sandbox to help policymakers gain a deeper understanding of the market and to draw on real world use cases when designing their rules. This, alongside the consultation exercise, has struck a good balance between having the appropriate level of control while allowing innovative products to continue to be developed.

“The FCA has been keen to ensure it is aligned with international standards, particularly given the propensity and speed at which cryptoasset exchanges can move between countries or operate in a borderless fashion, thereby opening up the potential for regulatory arbitrage. Following the last consultation period ending in October 2019, the FCA tightened the regulation to include all classes of cryptoassets, addressing concerns that some types of tokens would be exempt.

“Regulating cryptoassets is always going to be a complex and challenging task. These are the first steps in a long journey, and the FCA has made a solid start by developing token definitions and categories. Although there are some grey areas within the definitions, the FCA has also chosen not merely to follow the hybrid token classification used by other regulators. Rules for unregulated tokens will also require definition further down the road, and as the market continues to evolve the wider area of unregulated cryptoassets will require greater scrutiny.”