You can see the rules and regulations in other jurisdictions.
Blockchain technology continues to capture the imagination, and the number of businesses adopting the technology for their own purposes indicates long-term trends. In the UK, insurance and crowdfunding are the key industries that are currently using it, followed by asset management.1
Even though the cryptoasset market is in a state of significant flux at the time of writing, blockchain's original use continues to be relevant. There has been a period of instability and regulatory uncertainty as a result of global rules and regulations developed. Both as part of a broader UK Cryptoasset Taskforce and independently, the FCA has been involved in cryptoasset research. As a result of that work, Policy Statement 19/22 has been published, intended to assist market participants in understanding whether the cryptoassets they use are within regulatory boundaries. Generally, cryptocurrencies are not regulated separately by the FCA as long as they do not form part of any other regulated products or services. There will be two categories of cryptoassets: regulated tokens and unregulated tokens. For our purposes, we have not considered the latter category of tokens. Regulated tokens can be further divided into security tokens and e-money tokens.1
Tokens that are security tokens provide rights and obligations similar to specified investments as defined in the RAO, including those that qualify as financial instruments under the EU's second Markets in Financial Instruments Directive. Consequently, whether a cryptoasset will be treated as a security token will depend on its characteristics, such as (1) any contractual rights and obligations the token holder has by virtue of holding or owning that cryptoasset, (2) any contractual entitlement to profit-share, or (3) whether the token is transferable and tradable on exchanges.1
The new category of e-money tokens is based on the definition of e-money under the Electronic Money Regulations 2011 (EMR); that is, electronically stored monetary value as represented by a claim on the issuer that is (1) issued on receipt of funds for the purpose of making payment transactions, (2) accepted by a person other than the electronic money issuer, and (3) not excluded by Regulation 3 of the EMR.1
It is evident that the anonymity of cryptoassets could potentially be leveraged for illicit activities such as money laundering and terrorist financing. In order to better govern compliance with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs), the FCA has assumed regulatory oversight over cryptoasset entities from January 10th 2020. The MLRs have been amended to bring cryptoasset exchange providers (including providers of automated teller machines, peer-to-peer providers, and issuers of new cryptoassets) and custodian wallet providers within the scope of the Regulations. Those businesses will need to register with the FCA if they conduct such activities.1
As the UK has not legislated for the tax treatment of cryptocurrency and cryptocurrency-token offerings, HMRC, the UK tax authority, has focused instead on fitting these into existing tax laws. However, in light of the Final Report from the Cryptoasset Taskforce in October 2018, it was acknowledged that some clarification was needed, since HMRC's 2014 guidance was very limited and focused mainly on certain types of cryptocurrency. HMRC therefore published revised guidance, covering the tax treatment of cryptoassets for individuals who use them as a form of employee reward (December 2018) and the tax treatment of cryptoassets for companies and businesses (December 2019), which has been updated since then. For tax purposes, cryptoassets are treated the same as traditional assets by HMRC.1
Cryptoassets can currently be marketed to UK residents from other jurisdictions, but the UK financial promotion regime will apply and market participants will need to ensure that any financial promotion of products or services, whether regulated or unregulated, is carried out in a clear, fair, and non-misleading manner. The government has taken a measured, proportionate stance on the promotion of cryptoassets. In July 2020, it presented a consultation on incorporating some types of cryptoassets into the Financial Service and Markets Act 2000 (Financial Promotion) Order 2005 (FPO). After analysis, in January 2022 it confirmed its plans to include certain cryptoassets in the law. Security tokens are already covered by the regulation. Consequently, following the proposed alterations to the FPO, a new definition of 'qualifying cryptoasset' - one which covers crypto-currencies yet exempts 'utility tokens' which are connected to certain platforms in exchange for goods and services - will come into play. Therefore, numerous businesses operating within the cryptographic asset market that are not currently regulated will need to become authorized or permit approved firms to sanction their promotional activity, as outlined in Section II.1
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