In a speech delivered at the Cambridge International Symposium on Economic Crime, FCA and PSR Chair Charles Randall discussed some hot topics in the financial services sector – fraud and scams. More specifically, crypto scams and the regulation of digital assets or tokens.
Currently, the UK Financial Conduct Authority (FCA) has a limited role in the regulation of crypto assets as well as the platforms that facilitate trading. But this is something that is expected to change in the future.
Regarding crypto scams, Randall started with Kim Kardashian, and when she asked her 250 million followers to speculate on a crypto-asset claiming this may have been the “financial promotion with the single biggest audience reach in history.”
Randall worries that many crypto assets are little more than ephemera:
“There are no assets or real world cashflows underpinning the price of speculative digital tokens, even the better-known ones like Bitcoin, and many cannot even boast a scarcity value. These tokens have only been around for a few years, so we haven’t seen what will happen over a full financial cycle. We simply don’t know when or how this story will end, but – as with any new speculation – it may not end well.”
Meanwhile, a growing number of UK individuals hold digital assets and Randall advises these investors to be prepared to “lose all of your money.”
So should the FCA gain greater authority in the oversight of digital assets as well as marketplaces that enable transactions?
Randall says that “an effective system of regulation of digital tokens has to allow the more promising use cases for the innovative technology that underlies the tokens to flourish – especially the potential to make payments and financial infrastructures more efficient and accessible.” He believes in balanced regulation. Stablecoins are mentioned as an area of interest as this can remove friction (and cost) in the transfer of value.
“The Bank of England is considering the risks that stablecoins could pose to the financial system and monetary policy, but we saw with the UK operations of Wirecard that a player in payments does not have to be systemically important to cause significant consumer distress. So, any stablecoin business we may come to regulate, even if it is not systemic, will need to assure that end users would be able to easily exchange them, access them and use them to make payments safely and securely, with the same level of protection we expect from other types of payment instruments.”
Regarding digital assets that are securities, or security tokens, Randall believes distributed ledger technology may be used to improve settlement and custody. As this is more of a transition of an already regulated sector this is more of a natural next step.
Randall states that “good financial regulation supports innovation, productivity, and economic growth,” advocating for balance in a difficult challenge between investor protection concerns and the pursuit of innovation in financial services.
Withe FCA working with the Treasury and Bank of England as part of the Cryptoassets Taskforce pertaining to a closed consultation you may anticipate further rules addressing crypto later this year.