UNITED KINGDOM Law and Practice Contributed by: James Burnie, Kathryn Dodds, Olga Antonova and Nicky Androsov, gunnercooke llp
Broadly, this means that the classification of crypto- assets splits into three categories. • Security Tokens: These are tokens, other than e-money tokens, with specific characteristics which mean they meet the definition of a “Speci - fied Investment” under the RAO, and which are therefore within the FCA’s perimeter. This means that firms that deal in these tokens generally need to be authorised by the FCA under the FSMA to do so. • E-Money Tokens: These are tokens that meet the definition of e-money, in which case certain activi - ties in relation to them, particularly those linked to payments, may be within the FCA’s perimeter. • Unregulated Tokens: These consist of tokens that are not e-money tokens and are not security tokens. Dealing in these tokens does not require FCA authorisation. Regardless of the classification of crypto-assets, UK firms need to register with the FCA under the MLRs if they engage in any of the following activities: • exchange, or arrange or make arrangements with a view to exchanging crypto-assets for money or vice versa, or one crypto-asset for another crypto- asset; • operate a machine that uses automated processes to exchange money for crypto-assets or vice versa (eg, an ATM); or • provide custodian services for: (a) crypto-assets on behalf of customers; and/or (b) private cryptographic keys to hold, store and transfer crypto-assets. Furthermore, any invitation or inducement to invest in some crypto-assets (a “financial promotion”) is sub - ject to the “General Prohibition” set out in Section 21 of the FSMA, meaning that such activity must either be approved by an FCA-authorised firm with the req - uisite competence to do so, or fall within an exemp - tion. Generally, this is most relevant to consider for: • security tokens; and • unregulated tokens that are fungible and transfer - rable – and the exemptions are slightly broader for security tokens*.
Moving forwards, so-called “unregulated” tokens will in fact become increasingly regulated, and the new legislation is likely to be highly influenced by the existing securities regime, which may well narrow the difference between unregulated tokens and security tokens. In particular, the FCA has indicated that there will be new disclosure requirements before unregu - lated tokens can be sold into the UK, as well as rules designed to prevent market abuse with respect to such crypto-assets. Bespoke regimes are also being created for stablecoins, which will require in-scope firms to satisfy onerous regulatory requirements. * It is worth noting that a firm registered with the FCA for its crypto-asset business will fall within an exemp - tion and therefore is able to approve its own financial promotions. It is also worth noting that the require - ments of the financial promotions rules are oner - ous – for example, they incorporate the need for an appropriateness assessment and a 24-hour cooling- off period for first-time buyers. Firms complying with this regime need to dedicate appropriate resources to complying with it. 10.4 Regulation of “Issuers” of Blockchain Assets This “issuer” of a blockchain asset is not regulated per se; however, issuance is generally often linked to a sale, in which case that activity is subject to the potential requirement to: • register with the FCA under the MLRs; and • comply with the financial promotion restrictions outlined in 10.3 Classification of Blockchain Assets . In the future, as assets are listed on an exchange, even if the asset is considered an “unregulated” cryp - to-asset, disclosure and market abuse rules will likely apply. With respect to real-world assets, there is no bespoke regime for crypto-assets representing assets per se, and so the general approach still applies. This means that NFTs tend to fall outside of regulation if sold into the UK on a cross-border basis (or companies may be required to register with the FCA under the MLRs if sold from the UK) or they will be treated as
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