In its final report on cryptoassets and distributed ledger technology ("DLT"), the Financial Conduct Authority ("FCA") Cryptoasset Taskforce ("Taskforce") advised UK authorities to take "strong action" to mitigate the potential risks associated with cryptoassets, but expressed a positive view overall of the benefits offered by these new technologies.
Following several studies, the Taskforce determined that cryptoassets pose new challenges to the current regulatory framework. The report contains a review of existing types of DLT, their common uses, and a snapshot of the current UK market in those technologies and market players, as well as guidance as to which types of DLT are likely to fall within the current regulatory perimeter.
With regard to cryptoasset-related activity, the Taskforce advised UK authorities to prioritize addressing (i) the risks to consumers and market integrity, (ii) the use of cryptoassets for illicit activities and (iii) potential threats to financial stability. To mitigate these risks, Her Majesty's Treasury, the FCA and the Bank of England (the "authorities") intend to:
- clarify which cryptoassets will fall under the existing regulatory structure;
- potentially prohibit the sale to retail consumers of derivatives that reference certain cryptoassets;
- analyze how to effectively regulate exchange tokens and firms engaged in activities related to tokens;
- examine the use of cryptoassets for illicit activity; and
- participate in a coordinated international approach.
Additionally, the authorities agreed to continue (i) warning consumers of risks associated with investing in cryptocurrencies and (ii) monitoring the potential implications of cryptoasset-related activity for financial stability.
Commentary / Assia Damianova
The report is a very positive step from the UK regulators, and a good regulatory start in analyzing and encouraging the right type of DLT activity.
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