THE FINANCIAL Conduct Authority (FCA) has launched a consultation outlining its regulatory approach to cryptoassets which could impact peer-to-peer lenders working in this space.
It follows a report from the government’s cryptoassets taskforce last year, which alongside the FCA, said it would look to extend anti-money laundering rules (AML) to firms dealing in cryptocurrencies and related assets.
Separately, the FCA is seeking views on its approach to the sector.
It outlines three types of cryptos: exchange tokens that are not issued or backed by any central authority and are designed as a means of exchange such as Bitcoin or Ethereum; security tokens that give an investor a share or exposure to a debt instrument linked to a particular business; and utility tokens that give access to a particular product or service in return for investment.
The FCA said exchange tokens come outside of its regulatory perimeter but adds that they may come under the future AML rule changes.
“For example, if you are an exchange, and all you do is facilitate transactions of Bitcoins, Ether, Litecoin or other exchange tokens between participants, you are not carrying on a regulated activity,” the FCA said.
“This is in line with our approach to other investment-like products that remain outside our regulatory perimeter, like assets that some might consider having speculative value such as fine wine or art.”
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However, it said security tokens may fall under its remit as they could be similar to holding a share or bond, especially if you get voting rights or if they can be traded, while utility tokens may not be a regulated product as they could be more akin to rewards-based crowdfunding where you get a non-financial perk in return for your investment.
P2P lenders are currently using cryptoassets in various ways. For example, ETHLend lets users post cryptocoins as Collateral while Lee Birkett, founder of JustUs and online adviser Moneybrain, has unveiled the BiPs token, which will use blockchain technology to facilitate global payments.
The FCA document said the Treasury is also set to consult on potentially expanding the watchdog’s regulatory perimeter to bring in further types of cryptoassets alongside considering expanding AML rules to cryptoassets.
The consultation closes on 5 April.
“The emerging cryptoasset market is seeking regulatory clarity and the FCA’s proposals are an important first step,” Steve Davies, PwC’s blockchain leader, said.
“The categorisation of different types of cryptoassets, the definitions applied and the examples given all help address ambiguity in this emerging area.
“It is clear the FCA is looking to move fast, with final guidance expected in the summer.
“Some questions remain unanswered, including whether certain unregulated cryptoassets should be brought under the FCA’s jurisdiction to further protect consumers, and whether the existing regulatory framework is appropriate given the unique features and risks associated with these products.”