2018 Annual Review

Cryptocurrency rules take shape in the US and UK

Don't expect a radical departure from existing securities regulations

The US Securities and Exchange Commission (SEC) made clear in 2018 that longstanding rules governing securities issuance, investment and trading apply in full to digital asset securities (DAS), including those that use blockchain or distributed ledger technologies to offer cryptocurrencies or digital tokens.

In November 2018, the SEC issued a statement reinforcing the message that it would not be possible to skirt existing rules via technological innovation, regardless of the benefits the technology may provide to investors and capital markets. The message was substantiated in a series of enforcement actions against parties involved in DAS offerings, requiring them to pay penalties and register previously issued tokens as securities.

The SEC statement and enforcement actions are significant in that they establish "a path to compliance with the federal securities laws going forward" for issuers who may have conducted illegal unregistered DAS offerings.

Relevant existing laws apply to all parties involved in DAS activities, including asset managers; exchanges, even when structured as decentralized platforms; and broker-dealers or those involved in activities that require them to register as such.

The UK's Financial Conduct Authority (FCA) is taking a similar approach. In April 2018, the FCA explained how different forms of digital assets would likely sit within its regulatory framework. Four weeks later, it disclosed that it had initiated investigations into 24 unauthorized firms involved in digital asset businesses to determine whether they might be engaged in regulated activities requiring FCA authorization.

The FCA, HM Treasury and the Bank of England are expected to take a number of actions in 2019 to further develop and implement the UK's policy and regulatory approach to cryptoassets and distributed ledger technologies. For example, the FCA signaled that it would request input on draft guidance, setting out its interpretation of the application of the current regulatory framework to security tokens by the end of 2018, and HM Treasury plans to explore how exchange tokens might be regulated if necessary via a consultation to be issued in early 2019.


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