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Understanding the crypto market: How do regulations work in the UK?

Yesterday, the body responsible for the regulation of cryptocurrencies in the United Kingdom, published a document with specifications on the regulation of cryptocurrencies and the definition of their limits of regulation, which Bitcoin escapes, therefore will not be regulated by the FCA.

The United Kingdom aims to reduce the risks of cryptocurrencies by increasing the clarity of laws and facilitating their understanding by consumers. That is why he has published a document specifying the limits of the authorities, defining concepts and inviting the Fintech community to participate in a public consultation, the details of which are explained below.

Financial Conduct Authority FCA

In the world there are 231 exchanges of cryptocurrencies, 15 of them have their centers of operation in the UK. It is a reality that there are dangers around cryptocurrencies: financial crime, loss of resources due to market volatility, hacking, theft, fraudulent activities, market manipulation and lack of control systems.

To protect the $ 200 million dollars per day that make up the volume of exchanges in cryptocurrencies in the United Kingdom, the FCA has issued a document that defines how extensive the regulations must be to eliminate the aforementioned risks.

The Financial Conduct Authority; FCA for its acronym in English: Financial Conduct Authority, is the independent public regulator in charge of monitoring the actions of 58,000 financial services companies in the United Kingdom. It works under the premise that: “Financial markets need to be honest, fair and effective for consumers to make fair deals.”

As part of the Fintech regulation strategy of the United Kingdom, in March 2018, a Cryptoassest’s Taskforce was created to evaluate the potential impact of cryptocurrencies and analyze the policies that will be established in response to the existence of cryptocurrencies. of cryptoactives.

These groups have worked to ensure the integrity of the market, that consumers are protected and that competition truly serves the interest of the consumer.

On January 23, 2019 the FCA publishes a Guide on Criptoactives which describes what is understood by cryptocurrencies, to what extent the regulatory perimeter ends; the boundaries that separate the activities of regulated financial services from those not regulated and the characteristics of public consultation are defined.

What are cryptocurrencies?

The FCA defines cryptocurrencies and tokens as follows:

“Cryptoactives are value representations or cryptographically insured contractual rights that use some form of Distributed Registration Technology (DLT) and can be transferred, stored or exchanged electronically.” Press release from the FCA.

How far does the regulatory perimeter of the FCA go?

There are many cryptocurrencies that fit this definition, and since not all of them are monitored by the FCA, three categories of cryptoactives have been defined:

Cryptoactives that are not regulated by the FCA:

Exchange tokens: Cryptoactives such as Bitcoin, Litecoin and equivalents are commonly referred to as cryptocurrencies or payment tokens and are usually decentralized. Exchange tokens use a Distributed Registration Technology (DLT) platform and are not generated or supported by a central bank or other central authority. They are usually used as a matter of exchange or investment. These tokens are usually outside the regulatory perimeter of the FCA. Therefore, transferring, buying and selling these tokens, as well as the operation of the exchanges that manage them, are not regulated by the FCA.

Cryptoactives that are regulated by the FCA:

  1. Security Tokens: These are tokens that are equivalent to an investment specified under the Order of Regulated Activities (RAO). They can redeem rights such as property, reimbursement of a specific amount of money or the right to participate in future benefits. These tokens are usually within the regulatory perimeter of the FCA.
  2. Utility Tokens: These are tokens that can redeem access to a product or service that is typically provided using a DLT platform. Typically they fall within the regulatory perimeter of the FCA.

Types of use for the cryptoactive:

As a means of exchange: When they function as a decentralized tool to enable the purchase and sale of goods and services.
When they work as a decentralized tool to enable the purchase and sale of goods and services. As an investment: When companies and consumers obtain benefits from the exchange of cryptoactives.

When companies and consumers obtain benefits from the exchange of cryptoactives. As a support to raise capital and / or the creation of decentralized networks: Through ICOs, crowdfunding and other distribution mechanisms.

This scheme is set forth in the cryptoactive guide, 2019, p. 17, serves to identify what type of authorization a cryptocurrency company needs to transact to operate.

A contribution to economic diversity

It is worth mentioning that this regulation is taking into account not only the disadvantages and dangers of cryptocurrencies, but also its important contribution to the opening of the financial market, its usefulness in international transactions and its contribution to diversity and economic equity. It is a wonder that the government of the world power is open to suggestions that pay for equality and diversity to remain dormant in the cryptocurrency market.

Later this year, the FCA will ask if it will be good to prohibit the sale of derivatives related to cryptoactives for sale to investors. The government will consult if it will be convenient to expand the regulatory perimeter to include future activities with cryptoactives.

UK; Reference in Fintech Regulation

At the Fintech Conference held in Mexico City in November, Banxico’s director of regulation, Viviana Garza Salazar, explained that the UK authorities have given great support to the Mexican regulators in charge of creating the Fintech Law. They have followed up and shared guidelines for the creation of the law in Mexico. Therefore, the recently issued English document will not only serve as a guide for those operating in this country, but will serve as a reference for the global challenge of regulating cryptocurrencies.


Also published on Medium.

Published inCryptocurrencies

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