Yesterday, the Chair of the UK’s Financial Conduct Authority (FCA), Charles Randell, gave a speech about the potential to regulate cryptocurrencies beyond the FCA’s current responsibilities, which mainly relate to ensuring anti-money laundering (AML) compliance.
Even for AML, he noted that many who applied for a license didn’t have adequate systems and withdrew their applications.
He was underwhelmed that Kim Kardashian used her name to promote Ethereum Max, a token that could easily be confused with Ethereum. Two issues need to be addressed in the short term, and one of these is how crypto-assets are promoted.
Randell cited research that shows 2.3 million Britons have bought crypto-assets, and 12% or around 250,000 people believe they are protected under an FCA scheme, but they aren’t. He wants promotions to make it clear that these investments are not protected through any FCA schemes.
The second urgent issue is the risk of contagion to the economy as financial institutions get involved in the sector. He pointed to the June Basel III proposals, which would require banks to have the highest level of capital coverage (1250%) for crypto holdings.
Earlier this year, the UK government launched a regulatory consultation on the topic that suggested regulating stablecoins but taking a light touch for crypto-assets, focusing on promotional clarity and AML. Does this speech signal a possible change?
If that were to evolve, Randell highlighted some issues he’d want to see addressed. These include making it hard to use tokens for crime but still supporting innovation. In his view, a big question is whether consumers should be free to buy unregulated speculative tokens.
He was also concerned that if tokens are regulated, then the sector gets a Halo effect, and consumers think it’s bona fide. There’s also the issue of decentralization, and Randell emphasized there need to be organizations and people that are regulated. Many decentralized finance (DeFi) protocols try to sidestep regulation based on being decentralized, despite a clearly identifiable team of people involved in the project.
Randell was upbeat on two applications: stablecoins for payments and security tokens that represent regulated assets such as stocks or bonds and are clearly within the FCA’s jurisdiction.
While Randell pointed to international coordination and work already done by IOSCO, it was clear his emphasis is different to the United States, where the current regulatory focus is on crypto exchanges, crypto lending platforms and DeFi.