U.K. Watchdog Outlines 3 Token Types, Says Utility Tokens ‘Not Securities’
The U.K.’s top market regulator the Financial Conduct Authority (FCA) has issued a new consultation advisory on cryptoassets. Therein, the body argued utility tokens weren’t securities and thus weren’t in their jurisdiction. That position is a far cry from the one held by America’s top securities watchdog, SEC Chairman Jay Clayton, who’s previously suggested all ICO tokens are likely securities in the U.S.
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For the Most Part, FCA Suggests Only One Type of Token In Its Jurisdiction
This week, the United Kingdom’s FCA issued a consultation paper called “Guidance on Cryptoassets” that set out the watchdog’s tentative legal positions on cryptocurrency tokens.
The watchdog’s advisory outlined three token types, chief among them being “exchange tokens” like bitcoin and ether, which the FCA said are primarily used as means of exchange and are generally outside of their jurisdiction.
1/ 🚨🚨🚨BREAKING: UK Securities regulator rejects the SEC's "fully decentralized" test for utility tokens in new guidance, says utility tokens are not securities within their jurisdiction, regardless of functionality.
— Marco Santori (@msantoriESQ) January 23, 2019
The other two token types the body listed were securities tokens and utility tokens.
The Authority said the former, insofar as they function like a “share or a debt instrument,” were within their legal purview. Of the latter, utility tokens, the regulators said they “may be” in their jurisdiction in some cases, but in the main, many of these tokens didn’t confer specific investment rights that would put them past the U.K.’s legal bar for being securities.
“To be securities, utility tokens must have have hallmarks of traditional securities,” Blockchain Chief Legal Officer and President Marco Santori commented, analyzing the FCA’s position on Twitter.
“That is to say, they must confer rights that correspond to particular obligations. Think: to vote and direct the operation of a company, to collect profit, to enforce indebtedness.”
4/ @TheFCA guidance is particularly clear, I think, because it focuses on “intrinsic” characteristics of cryptoassets — e.g.: "We consider a token to be a security based on its structure: the intrinsic nature of the token is important, not the mechanism by which it was acquired."
— Patrick Berarducci (@PatBerarducci) January 23, 2019
While these positions from the FCA are tentative, and the body is now seeking “feedback” on its positions per Santori, the Authority’s inaugural stances on cryptocurrency tokens are considerably more nuanced than what U.S. crypto users have seen from the leadership of the U.S. Securities and Exchange Commission to date.
In February 2018, SEC Chairman Jay Clayton — who oversees American securities laws that are much stricter than the U.K.’s — suggested most ICO tokens were securities in testimony to the U.S. Senate.
9/ Though other regulators in the world still look to the U.S. regulators and their crypto guidance as a reference, it's clear that they are taking one step forward and issuing sandboxes, regulations, or guidance without waiting around.
— Katherine Wu (@katherineykwu) January 23, 2019
In kind, the FCA’s new consultation paper outlines how the U.K. regulator already sees the cryptoeconomy quite differently, and is playing by different rules, than the SEC.
The advisory also suggests America is still currently far from being a global leader in crypto policy — indeed, it’s looking more and more like the U.S. will have to play catch-up with nimbler nations in the arena in the years ahead.
Big Bitcoin ETF Pulls Back a Proposed Change
In other regulatory news from this week, the Chicago Board Options Exchange withdrew from the SEC a proposed rule change to its high-profile VanEck SolidX bitcoin ETF.
CBOE has withdrawn the VanEck/SolidX bitcoin ETF proposal (https://t.co/812Ym7U7Hh).
They haven't given a reason yet, but withdrawal implies that they expected denial & didn't want another SEC order setting bad precedent for the future.
There will be no bitcoin ETF in Q1 2019.
— Jake Chervinsky (@jchervinsky) January 23, 2019
“They haven’t given a reason yet, but withdrawal implies that they expected denial & didn’t want another SEC order setting bad precedent for the future,” crypto legal pundit Jake Chervinsky said on the news.
It’s only the latest step back for crypto ETFs in America, which have hitherto been stonewalled over SEC concerns regarding fraud and market manipulation in the cryptoeconomy.
So, what’s next at the SEC? Nothing for the foreseeable future amid the ongoing U.S. government shutdown. And since that political struggle has no end in sight for now, all crypto ETF proposals in America are dead on the water in the interim.
“I am pessimistic about any meaningful progress that could be made on the crypto frontier once everything is back up and running,” noted Messari Inc. Director of Business Development Katherine Wu of the shutdown.
That kind of pessimism is likely to continue growing in the U.S. if other regulators around the world continue to move faster and bolder on cryptocurrencies than America’s financial watchdogs.
What’s your take? Should the SEC follow the FCA’s lead on utility tokens? Let us know in the comments section below.
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