UK Takes Steps Towards Legal Clarity for Cryptos-Does Not See Utility Token As Securities

The United Kingdom's Financial Conduct Authority released a 'consultation paper' on Jan. 23rd as part of its next step on working with crypto assets.

5th. The FCA has explained the reason behind this paper, highlighting the need for regulatory clarity in the crypto asset market due to the quickly developing blockchain technology which underlies it.

"We are consulting on Guidance for crypto assets to provide regulatory clarity for market participants carrying on activities in this space. The crypto asset market, and the underlying DLT technology, is developing quickly and participants need to be clear on where they are conducting activities that fall within the scope of the FCA's regulatory remit and for which they require authorisation," the FCA stated, introducing the paper.

It is a big step for the cryptocurrency ecosystem within the United Kingdom as this paper will not only provide legal certainty for the market, but it also seems to be taking a different stance on other less inviting regulatory framework being established across the globe.

Equivalent to the United States' SEC, the FCA has decided that utility tokens are not securities within their jurisdiction, regardless of functionality.

The FCA says there are two kinds of tokens: "Exchange Tokens" which are totally out of their jurisdiction, and "Security Tokens" are within their purview.

In this sense, to be securities, utility tokens must have hallmarks of traditional securities.

Their token sales are more akin to crowdfunding, as there is no form of Howey test, or equivalent, within the UK legislation.

The FCA has said that the decentralization of a network does not determine its status as a security.

South Africa has also released a similar consultation paper as they try to set a framework for the crypto asset ecosystem in the African country.