UK securities regulator rejects the SEC's test for utility tokens

24 Jan, 2019
by Joeri Cant
UK securities regulator rejects the SEC's test for utility tokens

The UK's Financial Conduct Authority published a consultation paper, called 'Guidance on Cryptoassets', where they reject the U.S. Securities and Exchange Commission's decentralization test as criteria to be a security token.

Blockchain's President and Chief Legal Officer Marco Santori, tweeted to his 29.6K Twitter followers that the FCA rejected the SEC's 'fully decentralized' test for utility tokens in new guidance, which says that utility tokens are not securities within their jurisdiction, regardless of functionality.

According to Santori, the FCA does not hold jurisdiction over utility tokens because they do not fit the requirements to be called security tokens.

Santori further points out that the UK has very different securities laws than the US does.

'This guidance isn't law', he said. 'In fact, it's a consultation which means the UK's securities regulator wants feedback on their position.'

Santori says that the FCA's guidance paper on cryptocurrency states that exchange tokens like Bitcoin and Litecoin are totally out of their purview. Security Tokens, however, are totally within their purview.

To be considered as securities, utility tokens must have hallmarks of traditional securities, says Santori.

'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.'

'So, really, to be a security, the token must just be a security token.'

Read more: Tron CEO Justin Sun hires former SEC official

A reddit user asked if this mean ICOs can again be done without too much regulatory scrutiny from the SEC in the UK?


The FCA added that while cryptocurrency activity in the UK has grown in recent years, the number of firms carrying out cryptoasset activities in the UK remains small and the overall size of the UK market represents a small percentage of the overall global cryptoasset market.

They further point out that mainstream financial services firms are entering the market, and a small derivatives market is beginning to develop.

The final guidance, which is planned for the Summer of 2019, will help market participants to understand whether the cryptoassets they employ are within the regulatory perimeter.

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