January 21, 2019

Treasury Committee’s Virtual Currencies Inquiry Publishes FCA and Bank of England Evidence

On May 22, the UK’s House of Commons Treasury Committee (Treasury Committee) updated its webpage on its inquiry into what it refers to as “digital currencies.” The webpage now provides links to written evidence the Treasury Committee has received from the UK Financial Conduct Authority (FCA) and the Bank of England (BoE) in which they outline their work in this area.

The FCA’s response considers whether different forms of cryptoassets and products that refer or relate to underlying cryptoassets may fall within its regulatory scope. For example, cryptoassets designed primarily as a means of payment or exchange would not generally sit within the scope of FCA regulation. However, the FCA reiterates that whether a cryptoasset falls within scope of the regulatory perimeter will be fact-specific, depending on the particular cryptoasset instrument in question. Through its work with firms and monitoring market developments, the FCA has identified several potential risks deriving from cryptoassets, including price volatility, market manipulation, cryptoasset derivatives and money laundering. The FCA also is unclear whether the distributed ledger technology underlying many cryptoassets will be adopted broadly across securities markets or remain limited to niche uses.

In the BoE’s response, it begins by outlining why it believes that cryptoassets are unlikely to replace commonly used payment systems, due to the current failure to perform three key functions of money: as a store of value; a means of payment; and a unit of account. The BoE also confirms its view that cryptoassets do not currently pose a material threat to financial stability due to the relatively small scale of current cryptoasset use and the negligible exposures and linkages the UK financial system currently has to crytposassets. Nevertheless, due to the rapidly evolving market, industry and technology surrounding cryptoassets, the BoE states that it will continue to closely monitor developments. The UK Prudential Regulation Authority also is assessing how prudential regulations should apply if cryptoassets were held by banks or financial institutions, including whether or not additional requirements are necessary to cover associated risks, such as the extreme levels of volatility that cryptoassets exhibit.

The webpage is available here.

The BoE’s written evidence is available here.

The FCA’s written evidence is available here.

©2019 Katten Muchin Rosenman LLP


About this Author

John Ahern, Financial Attorney, London, Katten Law Firm

John Ahern, partner at Katten Muchin Rosenman UK LLP and head of the London Financial Services group, focuses his practice on banking, financial services, UK and European financial markets, and related regulations. His background in private practice and as in-house counsel at a global investment bank provides him with perspective on the unique regulatory issues facing the wholesale and private banking sectors. John advises multilateral trading facilities, broker-dealers and banks on trading, clearing and settlement as well as custody of securities—both physical and...

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Carolyn H. Jackson, International Attorney, Katten Muchin law firm

Carolyn Jackson is a partner in Katten Muchin Rosenman UK LLP and is a Registered Foreign Lawyer. She provides US financial regulatory legal advice to a broad range of market participants, including commercial banks, investment banks, investment managers, broker-dealers, electronic trading platforms, clearinghouses, trade associations and over-the-counter derivatives service providers.

Carolyn guides clients in the structuring and offering of complex securities, commodities and derivatives transactions and in complying with US securities and commodities laws and regulations. 

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Nathaniel Lalone, Katten Muchin Law Firm, Financial Institutions Attorney
Senior Associate

Nathaniel Lalone, a partner at Katten Muchin Rosenman UK LLP, has a broad range of experience in the regulation of financial products and financial markets, and frequently provides regulatory and compliance advice to trading venues, clearing houses and buy-side firms active in the over-the-counter (OTC) derivatives, futures and securities markets. He is actively involved in advising clients on the implementation of MiFID 2 and MiFIR in the European Union as well as the international reach of US financial services regulation. He also has significant experience with structuring...

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Neil Robson, private equity fund managers counselor, Katten Law Firm, London

Neil Robson, a regulatory and compliance partner with Katten Muchin Rosenman LLP, focuses his practice on counseling hedge and private equity fund managers and other investment advisers on operational, regulatory and compliance issues. He regularly addresses Financial Conduct Authority (FCA) and EU authorization and compliance under both the EU Alternative Investment Fund Managers Directive (AIFM Directive) and MiFID, cross-border issues in the financial services sector, market abuse, anti-money laundering and regulatory capital requirements, formations and buyouts of...