In this guide BCL Partner, John Binns explains the FCA's approach to crypto assets.

The FCA's approach to crypto assets is a good example of the issues raised by the UK's complex system of financial conduct laws.

Are crypto assets regulated?

Issuing crypto assets is not itself a regulated activity under FSMA and the RAO. Whether it falls inside or outside the FCA's regulatory perimeter will depend on the nature of the asset involved, on which it has issued guidance.

Sales of derivatives that reference certain kinds of crypto asset have been banned since October 2020.

HM Treasury announced in January 2022 that it will amend the FPO so that the promotion of certain 'qualifying' crypto assets will only be lawful if done by (or approved by) an authorised firm.

This is likely to put considerable pressure on the interface between crypto firms and authorised firms, and the responsibilities of the latter in approving promotions of crypto assets.

Other risks for crypto-asset firms

Meanwhile, since January 2020, certain crypto asset firms (exchange providers and custodian wallet providers), even if not covered by either the RAO or the FPO, must nevertheless:

  • register with the FCA for the purposes of, and comply with, AML/CTF regulations; and
  • comply with reporting obligations under AML/CTF (SARs) and financial sanctions laws.

Crypto asset firms must also comply with the general law. For example, they must not:

  • deal with terrorist or criminal property, if they know or suspect it to be so;
  • defraud customers or others, either by active deception, or by failing to disclose information to them;
  • engage in aggressive or otherwise unfair trading practices; or
  • deal with any subjects of financial sanctions.

The FCA's approach to crypto asset firms

The FCA has been issuing alerts to consumers about crypto asset firms, to clarify that are not authorised, and stressing the need for those subject to AML/CTF laws to register with them.

In due course, we can expect it to investigate crypto asset firms it suspects have:

  • breached the general prohibition, by issuing crypto assets that fall within its perimeter;
  • engaged in financial promotions of 'qualifying' crypto assets (and any authorised firms it suspects have wrongly approved those promotions); and/or
  • failed to submit SARs or otherwise comply with AML/CTF laws.

Where the conduct of those firms potentially extends to general offences, such as fraud, we can expect it to investigate those too, and to prosecute where appropriate.

The upshot of this is that many firms with no previous experience of the FCA will need to become familiar with their rules and methods in reasonably short order.

Conversely, the FCA may have to develop some new expertise in a complex new industry that it is only now beginning to regulate.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.