U.K. Tackles Cryptoasset Regulation, Releasing Task Force Report That May Guide Other Countries

On 29 October 2018, the U.K. Cryptoassets Task Force published its final report. 

What Is It?

The Cryptoassets Task Force was launched in March 2018 by the Chancellor of the Exchequer and consists of the Treasury, the Financial Conduct Authority (FCA) and the Bank of England. Its goal is to develop an approach to cryptoassets which maintains the U.K.’s reputation as a safe and transparent place to do business, to ensure a high regulatory standard in financial markets, and to protect consumers while allowing innovators to thrive. That thriving is intended only for those innovators “who play by the rules.”

What Is in the Report?

The report provides a good analysis of key concepts of cryptoassets and distributed ledger technology (DLT), risks and potential benefits, and how those fit within the current regulatory perimeter. It considers the impact of DLT in financial services and identifies barriers to further deployment.

Finally, it provides the Task Force’s conclusions and actions to be taken forward by its constituent bodies.

Should I Read the Report?

We would recommend that those in the financial services or related industries do read the report. It is an easy and informative read, putting into perspective the position cryptoassets occupy in the financial markets as a whole and providing an informed commentary on the technical features of cryptoassets, DLT and their applications.

While the report deals with the U.K. regulatory system, many features of the U.K. system are common to other jurisdictions, particularly classification of certain cryptoassets as securities. Readers in non-U.K. jurisdictions may benefit from understanding the direction being taken by a G7 economy in regulating the sector.

What’s Next?

In the U.K. we are fortunate that the FCA published “The Perimeter Guidance manual” (known as PERG in the trade), which is guidance to assist with interpretation of its rule book, known as the FCA Handbook. It is difficult to countenance a set of hands big or strong enough to hold that weighty tome, and happily it is easily accessible online.

Helpfully, the report tasks the FCA to consult on guidance given in PERG on cryptoassets which are within the regulatory perimeter. The FCA also will be looking at potential regulatory changes to bring cryptoassets which look like securities into the regulatory fold. In addition, the FCA will consult on potentially prohibiting the selling of cryptoasset-based derivatives to retail consumers, although certain restrictions are already in place for those products.

Another hugely important output from the report is the requirement on HM Revenue and Customs (the U.K. tax authority) to issue revised guidance on the tax treatment of cryptoassets.

Money laundering and financial crime remain key concerns when dealing with cryptoassets, and the Treasury is to transpose the EU Fifth Money Laundering Directive into U.K. law, and broaden the scope of anti-money laundering and financial crime legislation.

Will This Keep Me Awake at Night?

No. It should help you sleep better knowing that the U.K. government is taking steps to develop a consistent and safe approach to cryptoassets.

Do I Need to Do Anything?

No, except to read the report and watch for the constituent bodies to complete their next tasks. The U.K. regulatory system already captures tokens which look and act like securities. There is more work to do on exchange tokens, but generally the report has little immediate effect on the U.K. regulatory system.