UK’s financial regulator confers ‘non-security’ status on Ripple’s XRP


The Financial Conduct Authority (FCA), UK’s primary regulatory watchdog, has finally recognized Ripple’s XRP token in a similar fashion as it has for Bitcoin (BTC) and Ethereum (ETH). The latter two crypto coin systems had already been classified as being an exchange or utility token, as opposed to being deemed a security and then subject to a much greater degree of compliance and scrutiny. Fortunately for Ripple, its XRP token has now joined this exclusive club, as well.

By taking this action, the FCA has taken one more, small step toward accepting all things crypto, but the UK still falls somewhere in the middle of developed economies that have either embraced or shunned the crypto revolution. The Fintech industry continues to make headway in the crypto arena in the UK, but not without more than an above average number of roadblocks thrown in its way. Crypto exchanges and other related entities in this new sector are still having a difficult time obtaining bank accounts. The news today is that Barclays has also dropped Coinbase, one of the premier examples of the best that crypto has to offer.

Michelle Bond, Ripple’s Global Head of Government Relations, notified the press of the change in status of XRP, after receiving the FCA’s latest report in which the change was documented. In reaching its decision, the FCA compared XRP in many ways to the ETH system in that both tokens could be used for exchanging value at the point of sale, the payment “exchange” part of the classification, or for accessing specific applications designed for the token, the “utility” side of the equation. As Bond noted in his tweet:

This is exactly the kind of regulatory clarity the industry needs.

Surprisingly enough and in the category of timing is everything, the FCA coincidentally published its long anticipated Final Guidance on how the agency would provide oversight to the crypto industry. The new set of guidelines follows a consultation process that began earlier this year. Brad Garlinghouse, the CEO of Ripple, quickly tweeted:

Applauding UK regulator, @TheFCA, for providing clarity & leadership on the classifications of digital assets. They recognize ETH has the features of a hybrid exchange/ utility token (not a security token) and call out the similarities between ETH and XRP.

Being categorized as a “security” has had severe consequences for the crypto industry, especially for the thousands of tokens that employed an Initial Coin Offering (ICO) as its fundraising vehicle. Developed economies across the globe have very specific laws on the books that dictate stiff registration requirements, investor protections, and material disclosures that, if not met, could result in significant fines, penalties, and possibly incarceration. The Security and Exchange Commission (SEC) in the U.S. came down hard on a number of ICO promoters in 2018, after declaring that their tokens were “securities”. Funds were recovered, and fines were instituted.

As a result, new ICOs have migrated to offshore markets or morphed into what are called “Security Token Offerings” or “Initial Exchange Offerings”, where more efforts are made to comply with existing laws and regulations. There has also been an initial wave of crypto related companies that have decided to relocate from the UK in anticipation of Brexit. A more restrictive regulatory and compliance regimen could easily create a second wave, which industry advocates would call a major setback for the UK.

Ripple, the management corporation behind the XRP token, however, has worked closely with banking institutions across the globe. Estimates are that over 200 banks are closely working with the company to use its disruptive technology to greatly improve cross-border payment efficiencies and reduce costs. Ripple has also worked along side regulators in several jurisdictions to ensure acceptance and compliance, making a more favorable classification by the FCA a considerably much more easier task than most.

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