A Guide To The FCA’s Approach To Crypto Assets – Technology



UNITED KINGDOM: A guide to the FCA’s approach to crypto assets

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In this BCL Partner guide, John Binns explains the FCA’s approach to crypto assets.

The FCA’s approach to crypto assets is a good example of the problems raised by the UK’s complex system of financial conduct laws.

Are crypto assets regulated?

The issuance of crypto assets is not in itself an activity regulated by the FSMA and the RAO. Whether it falls within or outside the FCA’s regulatory perimeter will depend on the nature of the asset involved, on which it has issued guidance.

Sales of derivatives that reference certain types of crypto assets are prohibited since October 2020.

Her Majesty’s Treasury announced in January 2022 that it will amend the FPO so that the promotion of certain “qualified” crypto assets is only legal if carried out (or approved) by an authorized company.

This is likely to put considerable pressure on the interface between crypto businesses and licensed firms, and the latter’s responsibilities in approving crypto asset promotions.

Other risks for crypto asset companies

Meanwhile, since January 2020, certain crypto asset companies (exchange providers and custodial wallet providers), even if not covered by the RAO or FPO, must nonetheless:

  • register with the FCA for the purpose of complying with AML/CFT regulations; and

  • comply with reporting obligations under AML/CFT (SAR) and financial sanctions laws.

Crypto asset companies must also comply with the general law. For example, they must not:

  • dealing with terrorist or criminal property, if they know or suspect this to be the case;

  • defraud customers or others, whether through active deception or by not disclosing information to them;

  • engage in aggressive or unfair business practices; or

  • discuss any financial sanctions issues.

The FCA’s Approach to Cryptocurrency Companies

The FCA has been issuing consumer alerts about crypto businesses, clarifying that they are not licensed and emphasizing the need for those subject to AML/CFT laws to register with them.

In due course, we can expect him to investigate the crypto asset companies he suspects have:

  • breached the blanket ban, by issuing crypto assets that fall within its perimeter;

  • participated in financial promotions of ‘qualified’ crypto assets (and any authorized company suspected of having wrongly approved such promotions); me

  • did not file SARs or otherwise comply with AML/CFT laws.

Where the conduct of those companies potentially extends to general crimes, such as fraud, we can expect them to also investigate and prosecute where appropriate.

The result of this is that many companies with no prior experience with the FCA will need to familiarize themselves with its rules and methods in a reasonably short time.

Rather, the FCA may have to develop new knowledge in a new and complex industry that it is only now beginning to regulate.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought according to your specific circumstances.

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