Name
Global FinTech Guide
Country _ Name
United Kingdom
SectionTitle
ICO / token sale
Body
Companies and projects have increasingly relied on the sale of digital assets, or tokens, as a means of fundraising. These tokens generally do not grant the holders an ownership interest in the issuing company or project, but may provide governance rights, access rights or other utility. This has been conducted through public sales known as initial coin offerings (ICOs), proliferation through token generation events (TGEs) or private sales, among other mechanisms.  While showing characteristics of traditional methods of fundraising, there are a range of unanswered questions related to the legal classifications of such products. As ICOs and TGEs will usually be distributed online and internationally, there is usually no single legal framework applying to such transaction, and the legal framework of each market in which the tokens may be offered or sold needs to be considered.

Introduction

Attitude of the country towards ICOs/token sales

In 2017, the FCA issued a consumer warning on ICOs being very high risk, speculative investments and are therefore unlikely to be suitable for retail investors. Investors are not covered by the Financial Ombudsman Service or the FSCS. Many financial institutions do not allow their customers to purchase cryptocurrency on their credit cards. The mainstream banks are generally unenthusiastic about ICOs / token activities because of the perceived high risks of money laundering, and the difficulty for banks carrying out their KYC and identification of source of funds obligations.

The government recognises that crypto assets could be used as a widespread means of payment to deliver improvements on cross-border transactions. However, they also pose financial stability and consumer risks. The government and regulatory bodies are continuing to assess their regulatory approach to crypto assets and the need to enhance consumer protection. 

For the moment, the Government and the FCA are generally adopting a “wait and see” approach, but in the longer term, it is likely that crypto assets will be brought into regulation in the UK.

Legal affairs

Presence of any explicit regulation on ICOs and the issuance of token/coins

ICOs, and tokens or coins, are not specifically regulated.
 
However, in many cases tokens or coins will be categorised as “securities” or in some cases as E-Money for regulatory purposes, and so activities in respect of tokens or coins may be subject to regulation as such in the same way as other securities such as (for example) shares, certificates of deposit, instruments creating or acknowledging indebtedness or units in collective investment schemes, or as E-Money.

The UK’s FCA published Guidance on Cryptoassets in its Policy Statement PS19/22 (July 2019). Although the guidance (and the FCA’s opinions set out in the guidance) do not have the force of law, it indicates the FCA’s own interpretation and approach to the regulation of crypto assets. The FCA categorises crypto assets into three categories for regulatory purposes:

  • Exchange tokens: These are not issued or backed by any central authority and are intended and designed to be used as a means of exchange. They tend to be a decentralised tool for buying and selling goods and services without traditional intermediaries. These tokens are usually outside the perimeter of regulation (i.e. unregulated).
  • Utility tokens: These tokens grant holders access to a current or prospective product or service but do not grant holders rights that are the same as those granted by specified investments. Although utility tokens are not specified investments, they might meet the definition of E-Money in some circumstances (as could other tokens). In this case, activities involving them may be regulated.
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