FCA warns of tougher regulation of the crypto industry

The regulator should strengthen consumer protection for those investing in cryptocurrencies who do not fully understand the risks involved, but must avoid going to extremes that would have the opposite effect. This was stated by FCA chief Charles Randell.

In his view, excessive oversight could create unrealistic expectations about consumer protection. Issuers of digital assets should ‘stay within reach of the regulator,’ the official said.

“Obviously, given the decentralized way in which speculative tokens are created, we will need access to the company and its team. This will allow us to monitor and enforce compliance with our requirements,” — Randell explained.

The FCA chief stressed that the regulator will reject registration applications from companies that cannot answer questions about their business structure and governance.

Such a stance was laid out in a regulatory notice concerning the UK Binance subsidiary dated 25 August.

According to Randell, the FCA is concerned about crypto startup promotions featuring influencers. In particular, he mentioned advertising for the EthereumMax project involving Kim Kardashian.

The official noted that, amid the FOMO-effect among retail investors and the spread of crypto-related fraud, many consumers become blind to potential financial losses.

“It is crucial that any regulation of such campaigns require a clear designation of risks and not create the impression that the token itself is subject to regulation or that the FCA has approved it,” — he explained.

Randell may have been referring to the situation with crypto broker CoinBurp. In July the FCA stated that the firm lacked authority to conduct the BURP initial token offering. In investor materials CoinBurp described itself as a “regulated broker.”

Randell stressed that the regulator would not wish to impose more prohibitions on consumers than on other markets, “which already do not lack risks for investors.”

“We simply do not know when and how this story will end. As with any new speculation, there is a risk that it may not end well,” —

The FCA head indicated that the watchdog could begin with moderate oversight of stablecoins and security tokens.

In his view, both paths could enable new use cases for cross-border payments, financial infrastructure, and expanded access to financial services. Excessive bureaucracy should not hinder them, the official added.

According to Randell, the FCA intends to ensure that token issuers and blockchain firms are solvent and transparent.

The official pointed to the success of the regulatory sandbox and its role in giving developers the opportunity to test their ideas in a favourable and isolated environment.

Randell argues that effective regulation of cryptocurrencies will require addressing three questions:

• how to deter the use of digital assets for financial crime;
• how to foster useful innovation;
• to what extent should consumers be free to buy unregulated speculative assets and bear responsibility for their own decisions.

“The wave of regulation is sweeping the world. Online platforms must recognise that they face the same supervisory regime as any other business. The same risks — the same regulation,” — he concluded.

In December 2020, the FCA introduced a temporary registration regime for crypto firms. It was scheduled to run until 9 July 2021.

In June the regulator extended the regime to 31 March 2022, while it conducted a thorough assessment.

In the same month, 64 crypto firms refused registration in the UK.

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