Thread by @msantoriESQ

1/ 🚨🚨🚨BREAKING: UK Securities regulator rejects the SEC's "fully decentralized" test for utility tokens in new guidance, says utility tokens are not securities within their jurisdiction, regardless of functionality.

2/ (obviously worth a triple siren)

3/ This is a meaty piece of guidance but I'll do my best to give a quick breakdown a few of the important points and some perhaps-overlooked consequences.

4/ OK, first remember: the UK has *very* different securities laws than the US does. Second: This guidance isn't law. In fact, it's a "consultation" which means the FCA (the UK's securities regulator) wants feedback on their position. Now, with that out of the way...

5/ FCA says there are three kinds of tokens: "Exchange Tokens" (cryptocurrencies like BTC, LTC, etc) are totally out of their purview. "Security Tokens" (tokenized equity, royalty streams, etc) are totally within their purview.

6/ Of course we already knew (assumed?) that. The interesting part is how the FCA sees utility tokens. Utility tokens are, by and large, outside the regulatory "perimeter" of the FCA.

To be securities, utility tokens must have have hallmarks of traditional securities. 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.

8/ So, really, to be a security, the token must just be a security token. Let's dive into what that means practically...

9/ It means functionality is *not* required in the UK prior to a public sale of a utility token. The token creator does *not* need to follow the SAFT Framework there. The token *can* be immediately traded on exchanges. The purchaser *can* expect profit.

10/...all without creating a security. "But Marco how can this be?" you might ask. Well, the FCA sees ICOs like incentive crowdfunding (think kickstarter, indiegogo)., which is not security selling. "Ok but how can *that* be?" you might ask somewhat more sternly...

11/ Because there's no Howey Test in the UK, silly. There's no notion of an "investment contract" - the catch-all that catches so mutch in the US. Sure there's a "collective investment scheme" but that has some pretty strict requirements in the UK.

12/ But... but.. muh decentralization! What about the now-famous "Hinman Test?" Doesn't that apply in the UK?

Like, not at all. Unequivocally no. Just unilaterally, absolutely categorically not. Damn you should read what the FCA wrote about this.

13/ I mean you should def read it but I'm not going to give you the link until a few tweets down why give away the milk for free

14/ The FCA said the decentralization of the network does not determine its status as a security. At most, it's a barometer: The more decentralized a network, the less likely it is to confer any "enforceable rights" on a token holder.

15/ This is probably best understood as a tip o' the hat to their fellow regulators in the US. I don't think it's really meant as actionable.

16/ FCA said a whole bunch of other interesting and actionable stuff about custodians, exchanges, issuers and the like, but I'll leave that commentary in the capable hands of the up-and-coming crypto twitter lawyers.

17/ Here's the sauce: fca.org.uk/publications/c….

18/ Remember, this is a consultation. The FCA wants to hear what you think about their positions. Deadline to respond is April 5.

19/ From the comments: "So is the Hinman Test wrong?" No not at all. Hinman test isn't meant as law. It's a heuristic for how the relevant folks at SEC are thinking about the application of US law to utility tokens. SEC and FCA: different regulators applying different laws.

20/ Also from the comments: "Are d/POS coins securities since staking confers voting rights?" No, that's confusing *rights* with *powers*. Rights are enforceable by courts. POS just potentially gives you a *power* to do something on the network.

21/ More from comments: "OMG Iz iT aLt sEeZon?!" Yes, by law now all the alt prices will go up forever.

Ok that's 21. I've hit my limit. If you have good analysis (especially if it contradicts mine, reply here and I'll RT)