Regulators around the world are slowly getting to grips with the rapidly evolving world of cryptoassets. The UK’s FCA is still considering which aspects of cryptoassets it should regulate, and which will remain outside the regulatory sphere.
The FCA defines cryptoassets as ‘cryptographically secured digital representatives of value or contractual rights that use some type of distributed ledger technology and which can be transferred, stored or traded electronically.’
The regulator’s current approach distinguishes between regulated and unregulated tokens.
The former category includes security tokens and e-money tokens. Since they derive their underlying value from regulated instruments like shares and loans, security tokens are the cryptoassets most obviously in the regulator’s sights at this stage.
Firms operating in the security token space need to ensure, not only that they are authorised to undertake all current and proposed activities, but also that they remain compliant on an ongoing basis. This is something Thistle’s expert cryptoassets team can help you with.
The category of cryptoassets currently designated as ‘unregulated’ by the FCA includes utility tokens, which can be redeemed for access to a particular product or service, and cryptocurrencies like Bitcoin, also sometimes referred to as coins or as payment or exchange tokens, on the basis that they are used as currency or as an investment.
Utility tokens and exchange tokens and, by extension, firms involved in this aspect of the cryptoassets industry may not currently be regulated by the FCA – although they are, of course, subject to the Proceeds of Crime Act (POCA) – but this will soon be changing.
The forthcoming implementation into UK law of the EU’s Fifth Money Laundering Directive (5MLD) means that such firms need to ensure that their anti-money laundering due diligence and transaction monitoring procedures meet the requirements that apply to them.
Beyond this specific consideration, we would strongly recommend that all firms operating in the cryptoassets space move rapidly towards the adoption of a ‘best practice’ approach covering governance, systems and controls, and financial promotions, inducements and disclosures. Again this is something Thistle can help with.
We’ve been monitoring regulatory developments in the cryptoassets sector for some time. That means we can provide expert guidance on structuring your offering in anticipation of future regulatory intervention. We can help you develop robust systems and controls, particularly around know your customer (KYC), anti-money laundering (AML), disclosure and best-practice operations.
If you’re an established cryptoassets exchange, broker, or other market stakeholder, we can help you verify that you’re providing an attractive and responsible service.
To find out more about how Thistle can help you future-proof your cryptoassets business, get in touch today. You can contact us using the contact form on the right or by emailing email@example.com. Or simply call us on 0207 436 0630.