The Cryptoassets Taskforce in the UK has released its findings and have painted a potential future for the cryptocurrency industry in the country.
In order to better understand the risks and benefits of virtual currencies, some governments have created groups or panels to solely focus on the nature of this disruptive technology and how to properly regulate it. One such nation in the United Kingdom (UK). It’s Cryptoassets Taskforce has spent the better part of this year investigating the industry and, according to the UK’s Financial Conduct Authority (FCA), have drawn some conclusions.
The group’s findings were delivered by Christopher Woolard, who is the Executive Director of Strategy and Competition at the FCA. His speech was given at The Regulation of Cryptocurrencies event that was recently held in London. It discussed what issues the taskforce, which consists of members of the FCA, HM Treasury and the Bank of England, found as well as their corresponding solutions.
Defining Industry Terms
Before any type of regulatory development can commence, certain terms need to be defined. Firstly, the taskforce defined a cryptoasset as “a cryptographically secured digital representation of value or contractual rights that uses some type of DLT and can be transferred, stored or traded electronically”. Based on this, the taskforce created additional definitions for key terms in the industry.
One such term is an ‘exchange token’. Because crypto doesn’t “function as money”, the group does not believe that it should have the word ‘currency” in it and feel that exchange token is a better fit as they are used as a medium of exchange. It added that this type of token is “not issued or backed by a central bank or other central body”.
The second term is a ‘security token’, which amounts to a “specified investment”. The findings detailed that these tokens “may provide rights such as ownership, repayment of a specific sum of money, or entitlement to a share in future profits. They may also be transferable securities or financial instruments under the EU’s Markets in Financial Instruments Directive II (MiFID II)”.
Lastly, ‘utility tokens’ “can be redeemed for access to a specific product or service that is typically provided using a DLT platform. They typically fall outside the FCA’s regulatory perimeter”.
This means that in addition to being used as a medium of exchange, cryptocurrencies can also be used for investment purposes as well as a means of raising capital as it is being done in ICOs.
Based on the above definitions, the task force believes that cryptocurrencies have no intrinsic value as they are not backed by a tangible source of value. The findings added that while they may have extrinsic value, this can disappear with a lack of a physical asset.
Cryptoassets Taskforce Highlights Problems and Solutions
While mentioning one benefit of using crypto to streamline and speed up cross-border payment processes, the taskforce, of course, found quite a few disadvantages of virtual currencies. The first one has to do with the end consumer and the pitfalls they might make when entering the industry. These include being exposed to scams and suffering financial losses. The findings also mentioned unclear practices in the market itself and how this might harm its functionality and user confidence in the industry.
No ‘why is crypto harmful’ list would be complete without the mention of illicit activities. The taskforce has concluded that cryptocurrencies pose a financial risk in that they may be used for money laundering or other types of fraud.
One of the solutions appears to be education. The FCA wants to further understand the industry, specifically with regard to regulations. The HM Treasury will also be involved in order to determine “the regulatory perimeter requires an extension to capture cryptoassets that have comparable features to specified investments, but currently fall outside the perimeter”. This includes facing any perceived risks posed by exchange tokens.
The FCA will also potentially prohibit the sale of derivatives that reference certain kinds of cryptoassets like exchange tokens as well as futures and transferable securities. The taskforce will also have a strong focus on preventing financial crime, actually doing more than what standard EU anti-money laundering laws call for.
What the Crypto Future Holds
As we can see, this is by no means the end of the Cryptoassets Taskforce. In addition to potentially implementing these solutions, the group will also continue to monitor the industry and any new developments that may arise. The HM Treasury has also stated that a regulatory framework with regard to exchange tokens, and even exchanges and wallets, should be forthcoming in 2019.
The group concluded:
Given that both UK firms and consumers are likely to experiment with current and future generations of cryptoassets, it’s vital we head off risks.
This is a smart move in a country where 93% of the population have at least heard of Bitcoin. In addition, Live Bitcoin News recently reported that chair of the UK Cryptocurrency Association (CryptoUK), eToro’s Iqbal V. Gandham, believes that “if the UK is going to have any say in blockchain and crypto innovation and is going to lead the world, it needs to act in 2019”.
Do you disagree with any of the Cryptoasset Taskforce’s findings? If so, which one and why? Let us know in the comments below!
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