The Cryptoassets Taskforce has published its final report. The 'Cryptoassets Taskforce Final report' lays out the UK’s policy and regulatory approach to cryptoassets and distributed ledger technology in financial services. It did not cover tax.
The Cryptoassets Taskforce, consisting of HM Treasury, the Financial Conduct Authority and the Bank of England was launched in March 2018.
The Final Report provides an overview of cryptoassets and Distributed Ledger Technology (DLT), assesses the associated risks and potential benefits, and sets out the path forward with respect to regulation in the UK.
Tax was outside the Taskforce’s remit.
- HM Treasury is working closely with HM Revenue and Customs to consider the tax issues raised by cryptoassets.
- HMRC will further update their guidance by early 2019, drawing on the Taskforce’s work.
See How are Bitcoin, cryptocurrencies or cryptoassets taxed in the UK?
Highlights of the report
- The Taskforce considers that cryptoassets pose new challenges to the current regulatory framework, and due to their complexity it is difficult to determine whether they fall within the regulatory perimeter.
- There is no standard form of DLT. The specific combination of these features depends on what a particular DLT platform is being used for and the design choices made by developers.
- Cryptoassets are one application of DLT. While all cryptoassets utilise some form of DLT, not all applications of DLT involve cryptoassets. The current most common cryptoassets are issued on permissionless ledgers.
- There is not a single widely agreed definition of a cryptoasset. A cryptoasset is a cryptographically secured digital representation of value or contractual rights that uses some type of DLT and can be transferred, stored or traded electronically. Examples of cryptoassets include Bitcoin and Litecoin (and other ‘cryptocurrencies’), and those issued through the Initial Coin Offering (ICO) process, often referred to as ‘tokens’.
- The market is constantly evolving, with new and different cryptoassets being developed and around 2000 currently in existence.
The Taskforce considers there to be three broad types of cryptoassets:
- Exchange tokens – which are often referred to as ‘cryptocurrencies’ such as Bitcoin, Litecoin and equivalents. They utilise a DLT platform and are not issued or backed by a central bank or other central body. They do not provide the types of rights or access provided by security or utility tokens, but are used as a means of exchange or for investment.
- Security tokens – which amount to a ‘specified investment’ as set out in the Financial Services and Markets Act (2000) (Regulated Activities) Order (RAO).10 These 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).
- Utility tokens – which can be redeemed for access to a specific product or service that is typically provided using a DLT platform.
While cryptoassets can be used as a means of exchange, they are not considered to be a currency or money, as both the Bank of England and the G20 Finance Ministers and Central Bank Governors have previously set out.
The Taskforce has identified a range of risks associated with cryptoassets, including:
- Risks of financial crime, including opportunities for cryptoassets to be used for illicit activity and cyber threats
- Risks to consumers, who may buy unsuitable products, face large losses, be exposed to fraudulent activity, struggle to access market services, and be exposed to the failings of service providers
- Risks to market integrity, which may lead to consumer losses or damage confidence in the market
- Potential implications for financial stability, which may arise if the market grows and cryptoassets are more widely used
HM Treasury, the FCA and the Bank of England plan to take action to mitigate the risks that cryptoassets pose to consumers and market integrity;
- to prevent the use of cryptoassets for illicit activity;
- to guard against threats to financial stability that could emerge in the future;
- and to encourage responsible development of legitimate DLT and cryptoasset-related activity in the UK.
Useful guides
Budget 2018 summary for individuals and business
How are Bitcoin, cryptocurrencies or cryptoassets taxed in the UK?
External links