FCA cryptoassets consultation is first step to regulated institutional marketplace

The FCA issued a consultation on guidance, which, once finalized, will set out the cryptoasset activities it regulates. The guidance will help firms understand whether their cryptoasset activities fall under FCA regulation. Firms will have a better understanding of whether they need to be authorized and can ensure they are compliant and have appropriate consumer safeguards in place.

The consultation is in response to industry request for greater clarity, and to the Cryptoasset Taskforce’s recommendation that the FCA provides additional guidance on the existing regulatory perimeter.

Christopher Woolard, executive director of Strategy and Competition at the FCA, commented in a release: “This is a small but growing market and we want both industry and consumers to be clear what is regulated, and what isn’t. This is vital if consumers are to know what protections they’ll benefit from and in ensuring we have a market functioning as it should.”

While numbers are still relatively small, an increasing number of consumers are investing in cryptoassets. As the FCA has previously made clear, consumers should approach cryptoassets with caution and be prepared to lose money. Consumers may be unaware of the limited regulatory protections for cryptoassets services that fall outside the FCA’s regulatory remit, such as the lack of recourse to the Financial Services Compensation Scheme and the Financial Ombudsman Service.

Cryptoassets have the potential to bring benefits to markets, firms and consumers, but there remain considerable risks to markets and consumers. This is an important first step in delivering the outcomes of the Cryptoasset Taskforce, as well as the FCA’s own work to address the harms from cryptoassets and encourage innovation in the interest of consumers.

Later this year the FCA will consult on banning the sale of derivatives linked to certain types of cryptoassets to retail investors. The UK government is planning to consult on whether to expand the regulatory perimeter to include further cryptoassets activities.

In an emailed statement, Ed Gouldstone, head of product management for Linedata’s asset management business, said: “The FCA’s consultation on the extent to which cryptoassets fall under its remit is the first step towards a fully functioning marketplace for institutional-grade crypto investing.

“Crypto investing is still in its infancy in the asset management industry, with most established players reluctant to enter the area without the regulatory framework that governs traditional markets and more mature asset classes.

“For fund managers to launch crypto funds they’ll also need high quality support services, such as custody and fund administration, and the market infrastructure to facilitate institutional levels of trading volumes.

“By defining the parameters of its jurisdiction on crypto activities, the FCA is kick-starting a process which should give financial companies the confidence they need to develop innovative cryptoasset strategies,” he added.

Read the FCA release

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