Shearman & Sterling | Fintech 2020 | U.K. Conduct Regulator Consults on Guidance on Crypto-Assets and the U.K. Regulatory Perimeter
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  • U.K. Conduct Regulator Consults on Guidance on Crypto-Assets and the U.K. Regulatory Perimeter
    The U.K. Financial Conduct Authority (FCA) has launched a consultation on proposed Guidance on whether certain crypto-assets fall within the U.K.'s regulatory perimeter (CP19/3). The FCA's consultation is in response to one of the commitments made by the U.K. Cryptoasset Taskforce last year in its final Cryptoassets Report. The Taskforce was established in March 2018 and comprises representatives from HM Treasury, the FCA and the Bank of England. The FCA's consultation closes on April 5, 2019. The FCA intends to publish the final Guidance on the existing regulatory perimeter in relation to crypto-assets by summer 2019.

    The FCA's proposed Guidance is intended to help firms determine whether certain crypto-assets fall within the FCA's regulatory perimeter. However, the FCA notes that assessing whether a crypto-asset is within the perimeter can only be done on a case-by-case basis and that the responsibility for ensuring that it has the correct permissions lies with the firm undertaking the activity. A firm that undertakes a regulated activity without the requisite permissions will be in breach of the 'general prohibition' in the Financial Services and Markets Act 2000. Any such breach by a person is a criminal offence and the person may be imprisoned or fined, or both. The consultation is relevant to a wide range of consumers, stakeholders and firms, in particular firms that issue or create crypto-assets, firms that market, sell, buy, hold or store crypto-assets, financial advisors, investment managers and investment exchanges.

    The FCA's proposed Guidance sets out the FCA's view on when crypto-assets would be considered:
    • "Specified Investments" under the U.K.'s Regulated Activities Order;
    • "Financial Instruments under the EU Markets in Financial Instruments Directive II;
    • Within scope of the U.K.'s Payment Services Regulations; or
    • E-Money under the U.K.'s E-Money Regulations.
    The FCA also confirms that, in addition to its work as part of the U.K. Cryptoassets Taskforce, during 2019 it will publish the outcome of consumer research on the use of crypto-assets and consult on a potential prohibition of the sale to retail consumers of derivatives referencing certain types of crypto-assets, including Contracts for Difference, options, futures and transferable securities. HM Treasury is expected to consult in 2019 on potentially expanding the FCA's regulatory remit to bring in more types of crypto-assets.