FCA outlines proposals on cryptoasset regulation, unauthorized activities to be considered criminal offense

Maria Nikolova

“If you carry on regulated cryptoasset activities involving security tokens, you will need to make sure you are appropriately authorised or exempt”, the FCA says.

The UK Financial Conduct Authority (FCA) has earlier today published a Consultation Paper on the regulation of cryptoassets, in which it specifies its proposals on how such activities will be overseen.

The FCA uses the framework developed by the Taskforce for different types of cryptoassets. In line with the Taskforce, the FCA has categorised cryptoassets into three types of tokens;

Categories of cryptoassets

  • Exchange tokens: these are not issued or backed by any central authority and are intended and designed to be used as a means of exchange. They are, usually, a decentralised tool for buying and selling goods and services without traditional intermediaries. These tokens are usually outside the perimeter.
  • Security tokens: these are tokens with specific characteristics that mean they meet the definition of a Specified Investment like a share or a debt instrument as set out in the RAO, and are within the perimeter.
  • Utility tokens: these tokens grant holders access to a current or prospective product or service but do not grant holders rights that are the same as those granted by Specified Investments. Although utility tokens are not Specified Investments, they might meet the definition of e-money in certain circumstances (as could other tokens), in which case activities in relation to them may be within the perimeter.

“If you carry on regulated cryptoasset activities involving cryptoassets that meet the definition of a Specified Investment as set out in the RAO, i.e. security tokens, you will need to make sure you are appropriately authorised or exempt”, the FCA says.

This is the same regardless of technology – if you are carrying on a regulated activity, it is likely you will need to be authorised, the FCA explains.

The regulator also elaborates on the consequences in case of carrying out regulated activities without any permissions.

Section 19 of FSMA sets out the ‘general prohibition’. The general prohibition states that no person may carry on a regulated activity, or purport to do so (claim to do so), unless they are an authorised person, or they are an exempt person. Firms carrying on regulated activities in relation to cryptoassets, as with any firms carrying on regulated activities generally, must make sure they have the correct authorisation.

Section 23 of FSMA sets out the legal consequences for breaching the general prohibition. It provides that a person who contravenes the general prohibition is guilty of an offence and may face up to 2 years’ imprisonment or an unlimited fine, or both.

A breach of the general prohibition is a criminal offence and carries a maximum penalty of 2 years imprisonment or an unlimited fine, or both.

The FCA is asking for comments on the Consultation Paper (CP19/3) by Friday 5 April.

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