This past week, Financial Conduct Authority (FCA) Chairman Charles Randell reviewed the challenges of securities regulation in a speech delivered at the Centre for Commercial Law Studies, Queen Mary University of London. The FCA has played a key and vital role in enabling Fintech innovation in the UK – without its support – much of what has been accomplished in what is recognized as the top global Fintech hub – would not have been accomplished. As the Board Chair of the FCA, Randell helps to craft the strategic direction of the FCA as the regulator looks to the future.
In his address, Randell tackled the hot topic of crypto, including stablecoins. Noting that the government is keen to support crypto innovation, Randell had this to say about crypto regulation:
“I’ve previously said that stablecoins – but only if they are strongly regulated to stay truly stable – may have the potential to reduce costs and frictions in certain types of payment transaction, and to challenge the very strong position occupied by a small number of players in the payments market. I’ve also said that distributed ledger technologies have the potential to produce efficiencies in various parts of the financial system. The FCA is already engaging successfully with these innovations.
But what would success look like if we also took on regulation of the issue and trading of purely speculative crypto tokens? Should people be encouraged to believe that these are investments, when they have no underlying value? When the price of Bitcoin can readily halve within 6 months, as it has done recently, and some other speculative crypto tokens have gone to zero? Should a couple with retirement savings of £250,000, which would buy them an annuity of perhaps £6,000 at age 65, be treated as “high net worth” and encouraged or permitted to speculate on crypto or other high-risk products with these savings? Should people without any significant savings or financial experience be encouraged or permitted to buy speculative crypto at all?
If the success of the FCA in regulating speculative crypto is going to be judged, and in due course no doubt it will be, these fundamental questions need to be properly and openly debated and answered well before responsibility passes to the FCA, rather than afterwards.”
Randell cautioned as to the risk of crypto investing and the need for “realism” when it comes to regulating the digital asset ecosystem. He also worried about the cost to regulate this new asset class. Additionally, he asked, “how do we curb people’s enthusiasm to do something that may seriously harm their financial lives?” Not a resounding endorsement of crypto assets.
As the government has proposed “taking new powers” in regards to the operations of the FCA, Randall is concerned that this may undermine the regulator’s independence. There is a “need to guard against is creating a strong channel for lobbying by vested interests who want to bypass our public interest objectives of protecting consumers and promoting competition, using politicians to get the rules changed in their favour,” states Randell.
Last month, the UK government revealed its intent to emerge as a top global crypto hub. Innovation can be messy at times – something regulators typically do not like. There will be a need for a balancing act as regulators seek to fulfill their mission and elected officials pursue their policy goals – two sides that may align most of the time but diverge at different junctions.