The Financial Conduct Authority (FCA) is beginning to get really serious with companies operating in the cryptocurrency space. According to a report by The Telegraph, the financial regulator has doubled the amount of crypto entities it is investigating, now taking a hard look at 50 to determine if they’re complying with regulations.
The FCA chose these particularly companies because it believes that they are providing financial services without permission. This past May, the regulatory agency was investigating less than 25 and the extended oversight is a measure designed to provide a cleaner cryptocurrency industry in the UK.
The FCA could be feeling pressure to act against more companies due to the current market slide. According to Andrew Jacobs, a partner at the Moore Stephens accounting firm, “The huge sums lost as a result of cryptocurrency prices falling this year will have triggered a rash of complaints to the FCA…Now that prices have collapsed, fraud is likely to be exposed, with greater pressure coming to bear on the FCA to ensure that this market can operate transparently and fairly.”
The FCA has previously asserted that it would take a stronger approach to cryptocurrency. It is said to also be considering a ban on certain crypto products, which may include futures. Cryptocurrency is currently unregulated in the UK, but the FCA, alongside the Bank of England and the Treasury, have created a “cryptoassets task force” that monitors crypto’s impact on the financial system.
The UK government is pushing for tighter regulations of the cryptocurrency space. Parliamentary members want to get past the “Wild West” atmosphere, which can only happen through increased regulations and oversight. According to a report by the Treasury department from two months ago, “Crypto-assets have been embedded in certain pockets of society and industry, and it is highly likely that they are here to stay. The UK Government and financial services regulators appear to be deciding whether they will allow the current ‘Wild West’ situation to continue, or whether they are going to introduce regulation. The current ambiguity surrounding the Government’s and the regulators’ positions is clearly not sustainable.”
Last week, FCA’s executive director of strategy and competition, Christopher Woolard, stated, “We’re concerned that retail consumers are being sold complex, volatile and often leveraged derivatives products based on exchange tokens with underlying market integrity issues.”
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The UK’s Financial Conduct Authority (FCA) will be holding consultations on a “potential prohibition” of cryptocurrency-based derivatives, in order to protect consumers from risks posed by digital assets.
“[T]he FCA will consult on a prohibition of the sale to retail consumers of all derivatives referencing exchange tokens such as Bitcoin, including CFDs, futures, options and transferable securities,” read the policy paper by the Cryptoassets Taskforce, which is composed of the FCA, HM Treasury, and the Bank of England. Not included under the proposed ban are cryptocurrencies classified as securities, which are then to be regulated by the European Securities and Markets Authority (ESMA).
The paper noted that the FCA has already supported ESMA’s restrictions on contracts for difference (CFDs) that reference cryptocurrencies, a measure that took effect last August 1.
The report added that the FCA “will not authorize or approve the listing of a transferable security or a fund that references exchange tokens (for example, exchange-traded funds) unless it has confidence in the integrity of the underlying market and that other regulatory criteria for funds authorization are met.”
The consultations have been scheduled for some time before the end of the year.
The task force also called for further clarification of general regulations for the cryptocurrency market, expressing similar concerns as the UK Treasury committee in its report released last month, such as price volatility of many virtual currencies.
While acknowledging the benefits of the use of cryptocurrencies, such as increased efficiency of financial transfers and the capacity to raise funds, the task force said, “Evidence of the current generation of cryptoassets delivering any of these benefits is limited and many use cases are unproven at a large scale,” leading it to conclude that “in many cases, the risks posed by the current generation of cryptoassets outweigh any potential benefits.”
The task force noted that the UK government itself is exploring the use of blockchain technology apart from financial services, having invested more than £10 million for various distributed ledger projects, and creating a £20-million GovTech Catalyst Fund to study applications of the technology for the public sector.
Last year, the FCA had already warned of the risks in investing in CFDs, but without suggesting a prohibition. It also issued guidelines last April affirming its authority over the trade of derivatives.