How Countries Have Been Classifying Crypto Across the World

[sirty143]

On Jan. 23, the United Kingdom’s Financial Conduct Authority’s (FCA), the domestic financial regulator, released a 50-page-long consultation paper dubbed “Guidance on Cryptoassets.”

As the U.K. seems to be moving closer toward rolling out a definitive regulatory framework, it is time to reassess how other crypto markets, specifically the major ones, are dealing with cryptocurrencies on the juridical level.

“Guidance on Cryptoassets,” reviewed: How the U.K. is going to deal with virtual currencies

Given the tone of the new FCA paper, the U.K. government seems to be leaning toward a rather neutral approach for cryptocurrencies.

The primary goal of the document is to provide more regulatory clarity for crypto market participants. Specifically, the FCA aims to help them understand whether their digital assets of choice are within the regulatory perimeter, what regulations apply to their business and whether they need to be authorized with the agency.

In the paper, the regulator outlines various possible definitions of crypto assets and currently applicable U.K. laws. Specifically, the agency notes that crypto assets could be considered “Specified Investments” under the state’s Regulated Activities Order (RAO) or “Financial Instruments” regulated by the Markets in Financial Instruments Directive II. The regulatory body also mentions that such assets could be subject to E-Money Regulations or Payment Services Regulations.

The FCA’s consultation paper then breaks down cryptocurrencies into three potential categories: exchange tokens, security tokens and utility tokens.

Thus, as per the agency, exchange tokens are those “not issued or backed by any central authority and are intended and designed to be used as a means of exchange.” The FCA cited the example of Bitcoin (BTC) and Litecoin (LTC) in the context of that particular type of digital asset, adding that exchange tokens are usually decentralized. Consequently, the regulator adds, such tokens can be used for the buying and selling of goods and services without the need for conventional intermediaries, such as banks.

Security tokens, in turn, are assets that “are the same as or akin to traditional instruments like shares, debentures or units in a collective investment scheme.” The FCA adds that such tokens likely fall under RAO and are hence “within the perimeter” of the watchdog’s purview. The FCA avoided mentioning specific examples of such security tokens, but nonetheless outlined a more abstract example:

“Firm CD, incorporated in the UK, has created a social trading platform, called the CD Platform, for users to easily exchange fiat currencies for exchange tokens. The firm issues ‘CD Tokens’ which are exchanged for fiat funds and these tokens are used to purchase other exchange tokens.”

In this scenario, the FCA writes, CD Tokens might be categorized as security tokens, as they “confer on the holder a right of ownership of the CD Platform.”

Finally, coins referred to as utility tokens are those that give users access to a product, but do not grant the same rights as security tokens — and hence are not covered by the regulatory regime, unless they can be classified as e-money by definition.

The FCA cites data previously obtained by the U.K. Cryptoassets Taskforce, noting that the country accommodates less than 15 crypto spot exchanges. Combined, they appear to have a daily trading volume of about $200 million — accounting for approximately 1 percent of the daily global trade in cryptocurrencies. Moreover, there are 56 projects in the U.K. that have held initial coin offerings (ICOs), which is less than 5 percent of projects globally. That implies that the domestic crypto market is still relatively small.

However, despite the modest size of the U.K.’s crypto industry, the local regulators have been intensifying their scrutiny: In December last year, the FCA revealed that it is investigating 18 companies over cryptocurrency use, while the U.K. tax collection service issued its first detailed tax legislation for private cryptocurrency holders. As for the FCA consultation paper, the agency is asking the public to weight in on the document and submit comments before April 5. The finalized version of the document will reportedly be presented by summer 2019.

Therefore, the U.K. might soon join the list of countries that employ a definite regulatory approach toward cryptocurrencies. See more for yourself here...

[sammysnack]

It is commendable, but I hoped that a country like Britain would act more loyally.