The Financial Conduct Authority (FCA) is the UK’s main financial regulatory body. The FCA regulates financial firms providing services to consumers and maintains the integrity of the financial markets in the United Kingdom. It focuses on the regulation of conduct by both retail and wholesale financial services firms.
The FCA currently has oversight to check that cryptoasset firms have effective anti-money laundering (AML) and terrorist financing procedures in place, but generally cryptoassets themselves are not regulated.
In general, the FCA takes a relatively light-touch approach to cryptocurrency regulation and has focused on protecting consumers and preventing financial crime, rather than trying to restrict or control the use of cryptocurrencies. The FCA has clarified that cryptocurrencies are not considered to be legal tender in the UK and are not subject to the same regulations as traditional currencies. However, the FCA does have some powers to regulate certain activities related to cryptocurrencies – security tokens (tokens with specific characteristics that provide rights and obligations akin to specified investments, like a share or a debt instrument) are the only FCA-regulated cryptoasset.
However, the FCA has the authority to regulate firms that provide cryptocurrency exchange services, or that offer other services related to cryptocurrencies, such as custody or trading. These firms must meet certain requirements, such as obtaining a license from the FCA and complying with anti-money laundering and counter-terrorist financing regulations. If firms are registered with the FCA it means they follow a level of AML regulation acceptable to the FCA and conduct appropriate customer due diligence and checks before onboarding clients.
The UK Advertising Standards Agency (ASA) has also become involved in cryptoasset oversight, regulating the promotion of cryptoassets to consumers by increasing its scrutiny of social media, web pages and ads.
Additionally, the FCA has issued guidance on the use of cryptocurrencies for investment, warning consumers of the risks associated with cryptocurrency investments and cautioning them to be wary of scams and fraud.
Overall, the UK’s approach to cryptocurrency regulation is focused on protecting consumers and promoting innovation, rather than imposing strict controls on the use of cryptocurrencies.
FTX Saga
It is difficult to say exactly how the recent FTX saga will impact cryptocurrency regulation in the UK. As a large and well-known cryptocurrency exchange, the events at FTX have garnered significant attention, and may lead to increased scrutiny of the cryptocurrency industry by regulators.
However, it is important to note that the issues at FTX were not related to cryptocurrency regulation per se, but rather to the company’s internal operations and management. As such, it is unlikely that the FTX saga will result in significant changes to the UK’s existing regulatory framework for cryptocurrencies.
Instead, the events at FTX may serve as a reminder to regulators and industry participants of the importance of strong internal controls and good governance. The FCA may use the FTX case as an opportunity to reinforce its expectations for firms operating in the cryptocurrency space, and to remind them of their obligations under existing regulations. Who knows they may even decide to bring it in to regulations!!
LHI Consulting specialises in providing firms with regulatory guidance and support including putting in place robust controls frameworks, AML and other areas of Financial Crime – if you need a health check of your procedures or policy or want to discuss other areas of regulation please get in touch.
