The FCA has warned cryptoasset businesses not to mislead customers about what protections apply and the status of their RCA registration.
In a guidance paper published in July of this year, the FCA commented: “The cryptoasset market and its underlying distributed ledger technology (DLT) is developing quickly, so participants need to be clear on where they are conducting activities that fall within the scope of our regulatory remit and for which they require our authorisation.
“We also want to help consumers better understand the cryptoasset market and the resulting implications for the protections they have, depending on the product.”
The current update states that from 10 January 2020 the FCA will be the supervisory and enforcement body over UK cryptoasset businesses under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations Act 2017.
Baker McKenzie reports concern that HM Treasury’s wide definition of crypto-assets would capture businesses publishing open-source software, which could include applications that can be downloaded onto a customer’s device to store or administer a token. The FCA has said this is unlikely to fall within the Treasury’s final scope.
This will not definitely be known however, until HM Treasury publishes its 5MLD Policy Statement later this year.
The cryptoasset activites expected to fall within the purview of the FCA’s enforcement capacity include:
- cryptoasset exchange providers – the exchange of fiat currency for a crypto-asset or vice versa and (which goes further than 5MLD) exchanging one crypto-asset for another crypto-asset;
- cryptoasset Automated Teller Machines (ATM) – i.e., physical kiosks that allow users to exchange crypto-assets and fiat currencies;
- custodian wallet providers – businesses that look after a customer’s tokens within its IT system or server that may administer or transfer tokens for customers;
- peer to peer providers – businesses providing online marketplaces to facilitate the exchange of fiat currencies and cryptoassets (again this refers to both fiat-to-crypto and crypto-to-crypto); and
- issuers of new cryptoassets, e.g. an Initial Coin Offering or Initial Exchange Offering in exchange for fiat currency.
Businesses already operating under cryptoasset activities will be extended a grace period for registration until 10 January 2021, perhaps a sage tactic given that HM Treasury’s final response has not yet been published and that preparations for Brexit are dominating business’ change projects.
If firms are not registered by 10 January 2021, they must cease all cryptoasset activity or be found non-compliant. The FCA have provided a 3 month guide for business’ application assessment period, with applications received prior to 3 June 2020 given priority processing.