The Financial Conduct Authority (FCA) has said it stands ready to regulate the crypto market in the UK but has doubts over who will end up paying for the higher costs of this additional regulation.
The chair of the FCA, Charles Randell, said in a speech at Queen Mary University of London that the FCA's success in regulating speculative crypto is going to be judged and questions need to be answered.
“Should people be encouraged to believe that these are investments, when they have no underlying value? When the price of Bitcoin can readily halve within six months, as it has done recently, and some other speculative crypto tokens have gone to zero?
“Should a couple with retirement savings of £250,000, ($311,684) which would buy them an annuity of perhaps £6,000 at age 65, be treated as 'high net worth' and encouraged or permitted to speculate on crypto or other high-risk products with these savings?
“Should people without any significant savings or financial experience be encouraged or permitted to buy speculative crypto at all?”
The chair of the financial watchdog hinted at policymakers, stating that “these fundamental questions need to be properly and openly debated and answered well before responsibility passes to the FCA, rather than afterwards.”
Randell also asked the question of who will pay for the extra costs of regulating crypto.
“Regulating crypto also means deciding how the FCA will raise the money to pay for the very significant costs of this additional regulation, including the question of whether the financial services industry as a whole should be exposed to the costs of failing crypto firms through the Financial Services Compensation Scheme.
“I think it shouldn’t, and that consumers should have to acknowledge that fact before an adviser helps them to buy crypto.”
The expansion of the FCA’s scope to include crypto firms has increased its fees by £8m. In its fee proposal document released in April, the regulator said the fee will go towards the costs of developing IT systems and recruiting extra staff for the project.
Although the FCA is not responsible for regulating how crypto firms conduct their business with consumers, they have recently been brought under the regulator’s supervision under the money laundering and terrorist financing regulations.
The regulator recently issued a statement reminding consumers that it has not been given regulatory oversight over direct investments in cryptoassets and non-fungible tokens (NFTs).
In addition, the FCA pointed out that investments in cryptoassets and NFTs are not protected under the Financial Services Compensation Scheme and investors should be prepared to lose all the money they invest.