UK cryptoasset registrationMohammad Haque
Cryptoassets are described by HMRC as cryptographically secured digital representations of value or contractual rights that use some type of distributed ledger technology (DLT) and can be electronically transferred, stored and traded. The distributed ledger technology (DLT) like blockchain, are not issued or backed by a central bank or other authority. Hence, the HMRC does not consider cryptoassets to be currency or money. Moreover, cryptoassets are considered very high risk, speculative investments.
Cryptoassets are called by several names like exchange tokens, cryptocurrencies, cryptocoins, or payment tokens as; they intend to use it as a method of payment. The different types of cryptoassets include Bitcoin, which is the most popular, Ether and Litecoin.
It can be categorised as regulated tokens and unregulated tokens. Regulated tokens fall within regulation and include security tokens which under the Regulated Activities Order (RAO) is known as Specified Investment that may provide rights to the investor like ownership, repayment of money, or share in the profits of the future and E-money tokens which falls under the characterisation of e-money under the Electronic Money Regulations (EMRs). Unregulated tokens, on the other hand, are tokens that are usually decentralised, are not security tokens or e-money tokens, are unregulated tokens and usually referred to as cryptocurrencies like utility tokens, Bitcoin, Litecoin and equivalents
According to research by EY, the growth of the cryptoassets has been tremendous from only one cryptoasset – Bitcoin to today 1500 and with many more created monthly.
Cryptoasset Regulation in the UK
The term crypto assets capture the broader range of tokens and are more neutral hence the UK regularity authorities prefer term crypto assets, rather than cryptocurrencies. The Financial Conduct Authority (FCA) classifies cryptoassets such as Bitcoin as unregulated “exchange tokens” and the Financial Action Task Force (FATF) considered it to be “virtual assets”.
The FCA’s Crypto asset Taskforce was announced by the UK government on March 2018 to consider appropriate policy responses and to assess the potential impact of cryptoassets and DLT in the UK. The Taskforce released its final report on 26th October 2018 following which FCA proceeded to enforce direct regulations for Cryptoassets.
The regulations in the Uk for cryptoassets are only for money laundering purposes. However, the regulation may depend on the structure of cryptoassets, token that provides rights like ownership position, repayment of a specific sum of money and entitlement to a share in future profits fall within the regulatory remit. The new anti-money laundering rules (MLR) for the crypto-assets sector imposed businesses that intend to carry on a cryptoasset activity after 10 January 2020 to register with the Financial Conduct Authority (FCA). However, the responsibility of the FCA is limited to anti-money laundering and counter-terrorist financing supervision and enforcement only and does not include customer protection of the Financial Ombudsman Service or the Financial Services Compensation Scheme (FSCS).