Now this is interesting; some thoughts from FCA CEO Nikhil Rathi, looking at how crypto is going to be regualted in the UK, which were made recently at a London event.
Having carefully managed the impact on financial services of the UK’s departure from the EU, we also have a vital opportunity to further enhance the attractiveness and global reach of our wholesale markets. This is through a proposed secondary objective to support long-term economic growth and international competitiveness of the UK economy.
We welcome this as it builds on our work we have already been doing and retaining our agility will be key. We have introduced wide-ranging listing reforms. Our pioneering ‘sandbox’, a regulatory safe space to test innovative products, has been much copied and now serves as a blueprint for over 40 regulators globally. It has supported the growth and innovation of over 50 blockchain firms. We are building on this through our Early and High Growth Oversight scheme.
Following a successful pilot, we are expanding it to provide closer supervision and support to 300 newly authorised firms. This will mean firms better understand our expectations while they start up and grow and ensure that we can identify and address harm developing in newly authorised firms quicker. In May, we will host our first ever CryptoSprint, having been overwhelmed by applications – more than 500 so far. Innovate Finance say the UK represented nearly half of all European fintech investment last year. High standards, enforced effectively, underpin this success.
As the City Minister said in April, alongside encouraging innovation and having an open mind to new technologies, we need checks and measures that to protect our system and consumers from serious financial crime. In crypto, our remit is currently limited to ensuring anti-money laundering rules apply to crypto firms. Minimum standards expected of firms we regulate – and some we don’t – from notaries to estate agents to make sure firms are not used to funnel money to fuel crime, terrorism or war. So far 33 crypto firms have gained registration from us under the anti-money laundering rules. By meeting the standards society expects and helping to build faith in their business model. Many were rejected as they had inadequate provision to prevent harm or even identify it in the first place.
We worked with many firms to help improve their capabilities instead of just rejecting or approving with no feedback or advice. But those that couldn’t or wouldn’t meet the standards didn’t make it through. This should not be interpreted as anti-innovation. Rather for innovation to endure and benefit consumers as well as entrepreneurs and investors, it cannot trade off against basic expected standards.
So we welcome the Government’s recent announcement of a flexible approach to regulation so we can proportionately deal with any risks that emerge and to receiving new powers over the promotion and marketing of high-risk assets, like crypto. Ahead of receiving these powers, we are finalising our rules, so we can act assertively once we do. But supporting innovation while maintaining standards is not enough. The debate between legitimate investment and trading and unregulated entertainment and gambling has become blurred.
Research shows that those investing in these products frequently do not understand the risks they run. Nearly half do not know they could lose their money. Many overstate their understanding. And most adults do not know that crypto is not regulated by the FCA, apart from our narrow remit on ensuring anti-money laundering rules are upheld.
We need to draw clear lines. We need clarity around ruling out future Financial Services Compensation Scheme (FSCS) coverage for investment losses from crypto, even when advised. As we have consistently warned, if you invest in crypto, you need to be prepared to lose all your money. Another issue is that firms we reject can still service UK customers from offshore. While have been encouraged to see partner agencies follow our lead when we have rejected firms’ registrations, it is not enough to rely on our global influence. This needs wider consideration by policymakers.