Charles Randell, Chair of the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), delivered an address at the Cambridge International Symposium on Economic Crime where he outlined the challenges and risks involved in regulating cryptocurrencies.
“These tokens have only been around for a few years, so we haven’t seen what will happen over a full financial cycle. We simply don’t know when or how this story will end, but—as with any new speculation—it may not end well,” he said today.
He reiterated that speculative cryptocurrencies are not regulated by the FCA, and therefore, consumers are not covered or protected by the Financial Services Compensation Scheme, a scheme that compensates consumers in the event of failing businesses.
“It’s difficult for regulators around the world to stand by and watch people, sometimes very vulnerable people, putting their financial futures in jeopardy, based on disinformation and fear of missing out,” Randell added.
The solution—he suggests—is for regulators facing down the crypto industry to focus on three primary issues.
First and foremost—making it harder for cryptocurrencies to be used for financial crime. Secondly, regulators must consider how to support useful innovation. Finally, regulators must take a view as to how free consumers should be to buy unregulated and speculative cryptocurrencies before the regulator steps in.
“The tide of regulation is turning all over the world, and online platforms should expect a future where regulation addresses the significant risks they pose in the same way as other businesses. Same risk, same regulation,” Randell said.
This is far from the first time the FCA has spoken out against the inherent risks in the crypto industry.
FCA tackles crypto
In January, the FCA published a consumer warning against investments advertising high returns based on cryptocurrencies.
“Investing in crypto assets, or investments and lending linked to them, generally involves taking very high risks with investors’ money. If consumers invest in these types of products, they should be prepared to lose all their money,” the FCA said at the time.
The FCA went further, taking the time to specifically outline five standout risks behind the industry.
These risks consisted of a lack of consumer protection, price volatility, product complexity, charges and fees, and misleading marketing materials.
“Consumers should be aware of the risks and fully consider whether investing in high-return investments based on crypto assets is appropriate for them. They should check and carefully consider the crypto asset business involved,” the FCA added.