The FCA has stated its expectations for financial advisers talking to their clients about cryptoassets.
The regulator stated once it regulates cryptoassets, when advising on tokens that fall within the regulatory perimeter, advisers will have to hold the relevant permissions.
However the FCA stated this will not be limited to: ‘advising on investments’, but did not offer any further detail on what additional permissions may be required.
In a 50-page consultation paper published today (January 23), the City watchdog stated it expects providers carrying out regulated cryptoasset activities in the UK to obtain the appropriate authorisation from the FCA.
The FCA defined cryptoassets as tokens that have characteristics which mean they are the same as or akin to traditional instruments like shares, debentures or units in a collective investment scheme.
Regulation of cryptocurrency exchange tokens (like Bitcoin, Litecoin, etc), which the FCA defined as tokens not issued or backed by any central authority that can be used directly as a means of exchange, was not outlined in today's consultation paper.
Given the complexity of many cryptoasset tokens, the watchdog acknowledged it may not always be easy to determine whether a token is a specified investment in need of regulation.
But the FCA said if the token-holder has contractual rights by virtue of holding or owning that cryptoasset then it was likely to be viewed as a specified investment.
By regulating the industry, the FCA stated adviser's clients who wish to invest in cryptoassets should be able to use the FCA Register to check providers they are dealing with have the necessary permissions for regulated activities.
The watchdog stated issuers of tokens may not need to be authorised, however certain requirements related to the issuance of the tokens may still apply, for example prospectus and transparency requirements.
FCA rules state a person can't invite others to engage in investment activity unless that person is an authorised person or the content of the communication is approved by an authorised person.
The consultation will run until April 5 and follows a report published by the UK Cryptoassets Taskforce in October last year which committed the FCA to consult on guidance in relation to its existing regulatory perimeter in the cryptoasset market.
The regulator said while the market remains "relatively small", investments in cryptoassets are increasing and consumers should approach the market with caution and be prepared to lose money.
Christopher Woolard, executive director of strategy and competition at the FCA, said: "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."
The research showed some respondents believed that, due to language such as 'mining' and 'coins', they were investing in tangible assets.
In an example of its enforcement, the FCA advised if a person provides advice in relation to cryptoasset security tokens that amounts to the regulated activity of advising on investments, but is not authorised or exempt, they may be in breach of the regulator's rules.
HM Treasury is due to consult this year on potentially expanding the FCA’s regulatory perimeter to bring in further types of cryptoassets and the regulator will consult on banning the sale of derivatives linked to certain types of cryptoassets to retail investors.
rachel.addison@ft.com
