As cryptocurrency continues to gain popularity, so too does the interest of regulatory bodies like the Financial Conduct Authority (FCA). If you’re a developer looking to create a new cryptocurrency or token, you’ll need to be aware of the rules and regulations that apply in the UK. In this article, we’ll explore what details you need to provide to British regulatory authorities.
Understanding the FCA’s approach to cryptocurrency regulation
The FCA has taken a cautious approach to cryptocurrency regulation, classifying most tokens as “securities” under the UK’s Financial Services and Markets Act (FSMA). This means that they are subject to the same rules and regulations as traditional securities such as shares and bonds.
To be classified as a security, a token must meet certain criteria, including being issued for investment, having an element of risk, and being traded on an exchange or in the secondary market. If your token meets these criteria, you’ll need to comply with FSMA rules and regulations.
What details do you need to provide to British regulatory authorities?
If your cryptocurrency or token is classified as a security, you’ll need to provide the following details to the FCA:
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Token information: You’ll need to provide information about the token itself, including its name, symbol, and description. This will help the FCA understand what the token does and how it is used.
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Issuer information: You’ll need to provide information about the person or entity issuing the token, including their identity, address, and contact details. The FCA will use this information to verify your identity and ensure that you comply with anti-money laundering (AML) regulations.
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Distribution channels: You’ll need to provide information about how the tokens will be distributed, including which exchanges or platforms they will be available on and how they will be marketed to potential investors.
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Risk information: You’ll need to provide information about the risks associated with the token, including any potential for loss of value or fraud. This will help the FCA assess the level of risk involved and ensure that investors are fully informed.
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Marketing materials: You’ll need to provide all marketing materials related to the token, including promotional materials, whitepapers, and social media posts. The FCA will use these materials to assess whether the marketing is compliant with FSMA rules and regulations.
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Compliance information: You’ll need to provide information about how you plan to comply with FSMA rules and regulations, including anti-money laundering (AML), know your customer (KYC), and market manipulation regulations.
Case study: ICOs in the UK
Let’s take a look at an example of a successful Initial Coin Offering (ICO) that complied with FSMA rules and regulations. In 2017, the British startup Blockstack raised £48 million through an ICO for its Stellar network, which is designed to facilitate cross-border payments and asset transfers.
To comply with FSMA rules, Blockstack provided detailed information about the Stellar network, including how it worked, how it would be used, and what risks were involved. They also provided information about themselves, their team, and their distribution channels. Additionally, they included a whitepaper that outlined the technical details of the Stellar network and its potential use cases.
The ICO was successful in raising funds and the Stellar network has since become a major player in the cross-border payments and asset transfer space.
What about tokens that are not securities?
Not all cryptocurrencies or tokens are classified as securities under FSMA rules. If your token is classified as a “utility token” or a “consumer good,” it may not be subject to the same level of regulation.
Utility tokens are typically used to access goods or services, such as a cryptocurrency that can be used to pay for electricity bills. Consumer goods are physical or digital products that can be bought and sold on a marketplace, such as a virtual world token that allows users to buy and sell items within the game.