UK Markets open in 7 hrs 38 mins

UK registering fewer crypto firms as FCA maintains tough stance

·3-min read
FCA CEO Nikhil Rathi reminded investors that the UK's financial watchdog does not regulate the cryptocurrency industry in England.
FCA CEO Nikhil Rathi reminded investors that the UK's financial watchdog does not regulate the cryptocurrency industry in England. Photo: Tolga Akmen/Anadolu Agency/Getty Images

The Financial Conduct Authority has maintained its tough stance on crypto, declaring “clear lines” are required for the industry, whilst also registering fewer firms.

Speaking at the Guildhall in London on Tuesday, CEO of the FCA Nikhil Rathi reminded investors that the UK's financial regulatory authority does not regulate the cryptocurrency industry, "apart from a narrow remit on ensuring anti-money laundering rules are upheld".

In his speech at the City Week event, Rathi stated the FCA's approach toward crypto should not be interpreted as anti-innovation but that it "cannot trade-off against basic expected standards".

The level of scrutiny the FCA has focused on the crypto industry has led to only 33 crypto firms having gained registration from the FCA under its anti-money laundering remit.

Read more: Is bitcoin helpful to totalitarian regimes?

The FCA said it had rejected many crypto firms' registrations because they "had an inadequate provision to prevent harm or even identify it in the first place".

The news reinforces a statement made last month by FCA policy official David Raw who said that 90% of cryptocurrency firms seeking approval for their anti-money laundering controls have either withdrawn their applications or been refused because they could not meet the regulator's standards.

Rathi continued to emphasise the FCA will maintain its tough stance on crypto and has ruled out Financial Services Compensation Scheme for the sector.

He stressed the need for clarity around this point, adding that clear lines need to be drawn.

Read more: 'Crypto lobby groups are dictating terms in Washington'

In his speech, he said: "We need clarity around ruling out future Financial Services Compensation Scheme (FSCS) coverage for investment losses from crypto, even when advised.

"As we have consistently warned, if you invest in crypto, you need to be prepared to lose all your money."

The Financial Conduct Authority (FCA) does not regulate most crypto assets, so FSCS cannot protect investors if a platform that exchanges or holds them goes out of business.

From the firm tone of the FCA chief's speech, it does not look like the crypto-sector will receive FSCS protection in the near future.

The CEO of the FCA also mentioned new powers that the regulator will be receiving concerning cryptocurrency advertisements.

Read more: Crypto live prices

Rathi added: "We welcome the Government’s recent announcement of a flexible approach to regulation so we can proportionately deal with any risks that emerge and to receive new powers over the promotion and marketing of high-risk assets, like crypto.

"Ahead of receiving these powers, we are finalising our rules, so we can act assertively once we do. But supporting innovation while maintaining standards is not enough."

Watch: Steve Hanke: What is the value of Bitcoin?

Commenting on the speech by the FCA boss, senior personal finance analyst Myron Jobson said: “The explosive growth of cryptocurrencies has left the city watchdog picking up the pieces.

"While cryptocurrency has come a long way since its humble beginnings in the recondite niches of the internet, the crypto market remains a Wild West – blighted by scams, fraud and irresponsible marketing.

"There is a desperate need for change.

“The rise of crypto has captured the minds of young investors in particular.

"Our research found that 45% of young adults aged between 18 and 29 are getting their first taste of investing through high-risk cryptocurrency – and an alarming number are funding this through a cocktail of credit cards, student loans, and other loans.

"The influence of cryptocurrency advertising cannot be understated here.

"They have become increasingly difficult to miss, often cropping up on social media platforms and even on public transport."

Watch: Steve Hanke: 'Cryptocurrencies are fiat money on steroids'