FCA sets out stall on crypto regulation

Nikhil Rathi, the chief executive of the Financial Conduct Authority (FCA), has set out a broad strategy to embrace and mitigate against the benefits and risks of digital platforms.

In a speech to guests at Peterson Institute for International Economics, Rathi stated that cryptocurrencies are particularly concerning given their accessibility and cross-border capabilities, which casts into doubt the legitimacy of the platform,

Throughout May and June, the FCA held events that they call ‘CryptoSprints’, in which 184 industry participants were invited to give their views on what appropriate regulation for cryptocurrencies would look like.

The results showed there's appetite for such regulation, to be phased in over time although the FCA does not have the jurisdiction to bring this in on its own. At the US-UK Financial Innovation Partnership talks in London, the US and UK also discussed such regulation, and raised the idea of central bank digital currencies as an option going forward.

The FCA hopes that in engaging with the market so actively, they can mitigate against future threats to consumer interests posed by crypto, rather than simply react against individual outcomes of market instability.

Rathi also highlighted the changes to systems infrastructure the FCA has made, with the intention of improving fraud detection.

“Last year we moved some of our core systems to the cloud. This enabled us to transfer over 50,000 firms and tens of thousands of users to a new regulatory data platform. Using our data lake, we aim to more swiftly identify, connect and react to firm and market issues,” he stated.

The FCA has long expressed doubt over the viability of cryptocurrency platforms, having been investigating the issue since at least 2018. In 2021, the agency went as far as issuing a warning that “if consumers invest in these types of product, they should be prepared to lose all their money".

As part of its innovative approach to regulating the financial tech sector, the FCA has recently reached an agreement with Google requiring firms that want to advertise on its platform to first receive FCA certification.

Another key policy highlighted in the speech was the FCA’s environmental, social and governance (ESG) strategy, through which they aim to promote awareness of climate change, work with firms to manage sustainability risks, and support the wider market in moving to an economy that is sustainable.

In line with the UK net zero policy, the FCA is also working with international partners developing similar policies to ease worldwide economic transition away from carbon.