Cryptoassets - a new regulatory landscape

Anthony Ma Anthony Ma

Cryptoassets have become increasingly mainstream in the financial services market. Despite this, the regulatory perimeter around them has been unclear and the FCA is formalising its interpretation of the Regulated Activities Order (RAO) in relation to cryptoassets.

The recently released consultation paper (CP19/3) aims to help firms determine which activities are regulated, to protect consumers and to mitigate the potential for financial crime in the long term.

Organisations must carefully review the consultation paper to check if any of their cryptoasset activities fall within the FCA perimeter, and gain authorisation for those activities accordingly.

It’s not just about Bitcoin

When most people hear the word cryptoasset, they think about cryptocurrencies such as Bitcoin or Ethereum. But the term is broader than that. Based on Distributed Ledger Technology, they are a new type of financial instrument which are being traded on exchanges with increasing regularity.

Firms want legitimacy

Cryptoassets have garnered significant attention due to the sheer volatility of the market. This can be good news for well-informed investors and has the potential to deliver big gains. But on the other hand, cryptoassets can pose a higher risk compared to fiat currencies in terms of financial crime and can cause potential harm to unwary customers. As such, regulators across the globe are voicing concerns about cryptoassets, but it’s taking time for regulation to catch up with how they are being used.

Businesses dealing in cryptoassets are a key driver in establishing adequate regulation in this area. With a high number of fraudulent schemes and Initial Coin Offering (ICO) scams reported in the media, they are keen to give their customers assurance over the quality, and legitimacy, of their investment opportunities. There is currently a degree of frustration across the FinTech sector and many businesses feel they would benefit from full authorisation and supervision by the FCA.

But how?

Following the UK Cryptoassets Taskforce report in 2018, policymakers are rolling out a series of consultations to shape the new regulatory landscape. This can be seen as a two step process:

  • The FCA has provided its interpretation of the existing Regulated Activities Order (RAO). Drawing on learnings form the regulatory sandbox, CP19/3 states which types of cryptoassets activities are regulated under the current laws
  • Her Majesty’s Treasury (HMT) will consult on potential changes to the RAO. The consultation is due in early 2019 and the outcome has the potential to bring a wider range of cryptoassets within the FCA’s regulatory remit

So what is the FCA’s interpretation of the RAO?

One of the main challenges for regulators is the huge diversity of cryptoasset products available. As a starting point, the FCA has identified three main types and interpreted their regulatory position based on the current RAO. The key test here is if a cryptoasset can be classified as a ‘specified investment’, as listed in the RAO, which in turn requires analysis of the contractual rights and obligations associated with it.

Types of tokens


FCA’s views


Bitcoin, Litecoin

These fall outside the regulatory perimeter. This is because they do not normally give the holder any of the rights associated with the Specified Investments as listed in RAO.


Tokens which give holders similar rights to shares

These fall within the perimeter. This is because they bear the same characteristics to traditional instruments, e.g. shares, debts, CIS units.


Tokens which give holders access to some service / product or grant rights similar to pre-payment vouchers

These are not usually not within perimeter, unless they meet the definition of e-money. E-money is electronically stored monetary value, represented by a claim on the e-money issuer. The e-money is issued on receipt of funds for the purpose of making payment transactions, and accepted by the e-money issuer. Note the exclusions under regulations 3 of the Electronic Money Regulations.

This is just the beginning

If you engage in any of the cryptoasset activities mentioned, you should carry out a regulatory analysis of the asset classes to determine if they are subject to the RAO. In some cases, the FCA may be available to comment on your regulatory analysis and offer feedback. If your activities fall within the perimeter, you must gain authorisation.

But it’s important to remember that this is just the first step in cryptoasset regulation in the UK. You should keep watch for the HMT’s consultation and for the FCA’s policy statement in the summer to make sure you remain compliant with the RAO.

For further information on what this means for you, please contact Anthony Ma.

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