The introduction of Facebook Libra has increased the pressure on regulators to take a closer look at cryptocurrencies, according to SolutionsHub COO Nick Wright.
The Financial Conduct Authority has moved to “provide clarity” on crypto with the publication of its latest guidelines on cryptoassets.
Mr Wright is a director at SolutionsHub, a company specialising in blockchain regulation and licensing. He said the latest FCA update was a sign that digital technology is increasingly being taken seriously by the authorities.
He said: “My personal opinion is that the recent announcement by Facebook regarding the introduction of Libra is putting pressure on regulators to examine, review and form positions on their own appetite to regulate (or not) digital assets and tokens.
“There is an argument to say that the additional clarity offered by the UK FCA should be considered as an acceptance that digital assets are here to stay and that regulation will at some point try to adapt to market sentiment and new technologies.”
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When is a token not a token?
Christopher Woolard, executive director of Strategy and Competition at the FCA, said the guidance “will help clarify which cryptoasset activities fall inside our regulatory perimeter.”
The latest guidance (PS19/22) deems Bitcoin and Etherum ‘exchange’ tokens, meaning they do not fall within the FCA’s remit. However, other forms of tokens do.
Mr Wright said: “While Bitcoin and Ethereum have been classified as ‘exchange tokens’, and therefore outside their remit and scope, other digital tokens/assets have not been so lucky.
“Security and utility tokens will be captured and regulated in some form with the former considered ‘digital assets that provide rights and obligations akin to shares or debt instruments’.
“The issuance of utility tokens, depending on their nature and structure, may meet the definition of e-money in certain circumstances. These tokens will also likely fall under the umbrella of the European Union’s 5th AML Directive which is being merged into UKL law in the latter stages of 2019.
“PS19/22 also provides recommendations for wallet providers, exchanges and trading platforms and that an updated e-money token category, falling within the E-Money Regulations, should be created.
“Despite the recent publication of PS19/22 the UK FCA have already conceded that further clarity will be required for actors and operators within the sector so as to ensure that regulations are clear and that no laws are being contravened.”