Cryptoassets FCA consultation - the outlook for 2019

31 January 2019


The Financial Conduct Authority (FCA) has published CP19/3: Guidance on Cryptoassets. This consultation paper follows the Cryptoasset Taskforce Report published in October 2018. The consultation will remain open until April 2019 and a Policy Statement is expected during the summer. 

The Consultation Paper expands on the definitions used in the Taskforce Report, differentiating between Security Tokens, Exchange Tokens and Utility Tokens and clarifies current guidance as to where related activities sit within or outside the perimeter. One of the FCA’s objectives is to provide definitions of crypto-related terms in order to bring increased clarity and consistency to the language and to help previously unregulated firms; to help achieve this they have included a Q&A in the Consultation Paper. 

This is an opportunity for Fintech and cryptoasset stakeholders to influence policy and shape future FCA engagement in respect of cryptoassets and as such, I would strongly encourage engagement with the questions that the FCA has posed – particularly in respect of perimeter guidance and the future interaction of cryptoassets product offerings with e-money issuance and payments.

Market specific risks

Some of the key concerns are; market abuse, inadequate Anti Money Laundering and Know Your Customer processes and controls, and a fundamental lack of consumer understanding of the product due to the complexity of the product offering or inherent to the asset class. In simple terms, there is a concern that consumers are by default being miss-sold a product, as they do not understand it. 

The FCA identifies the influence of fear of missing out (“FOMO”) and social media on consumer decisions in relation to cryptoassets. 

For those consumers who are engaging in non-complex app based products at low quantum and where the investment decision is based on social engagement rather than return, the risk of consumer detriment is in my view negligible. However, there remains a valid concern that consumers using cryptoassets as an investment strategy may view this as a tangible investment as opposed to what is essentially a speculative exposure into the use of a particular expression of distributed ledger technology - be that adoption of a cryptoasset by a central or clearing bank, future widespread usage of the cryptoasset as a payments or e-money solution, or as a doomsday/black swan scenario investment hedge.

Risk mitigation

The FCA will be aware of the risk that regulatory authorisation could give false assurance to consumers as to the stability of the provider or wider market, and that specific regulatory permissions could indicate security of product and investment. The FCA will not wish to increase this risk. 

However, cryptoasset participants looking to gain demonstrable assurance have other tools at their disposal.

The development of a robust governance and control environment akin to a deposit taker or traditional custodian will provide the basis of greater assurance for investors. Participants and investors will be looking for evidence of a strong control environment and there will be an increased demand for specific assurance reports on cyber security, financial crime management, wallet integrity and increasingly provenance of cryptoassets.

Outlook for 2019

At a participant level, we are likely to see an increase in the following:

  • Investment offerings using cryptoassets as a speculative or risk specific component of a wider wealth management strategy
  • Investment strategies using fiat currency or established commodities (e.g. gold) as a collateral buffer
  • Combinations of highly traded and established coins with fiat currency and other assets whether in currency pairs or as “stablecoins” or a version thereof 
  • Trials, including Sandbox, for cryptoassets in an e-money or payments landscape, particularly in facilitating improvements in transactional capability for developing countries as part of a wider financial inclusion proposition
  • Use of cryptoassets as part of a hedging strategy for cryptoasset or other commodity exposures.

What we will not see:

  • A proliferation of coins
  • Heightened initial coin offering (ICO) activity


While the cryptoasset market remains relatively immature in terms of offering, usage and regulatory perimeter, there are certainly positive evolutionary developments. A key cornerstone in achieving mainstream acceptance is an effective and proportionate regulatory environment, which provides appropriate protection to consumers while facilitating growth and innovation, we therefore encourage engagement with the FCA’s Consultation Paper to influence policy and shape the future regulatory framework.