Key Highlights:
- The U.K. FCA has confirmed that crypto firms in the region wouldn’t be entitled to a complete transfer of current financial rules.
- The regulator will waive some traditional rules for cryptoasset companies.
- One of the major reasons for this consideration is that the way digital assets work is different from other financial assets.
On Wednesday, the Financial Conduct Authority (FCA) reaffirmed that crypto firms in the U.K. would not see a complete transfer of the current financial regulations when it finally comes under its purview. The U.K. FCA has decided to waive some traditional rules for cryptocurrency companies.
U.K. FCA to Waive Some Traditional Rules for Crypto Firms
The FCA Executive Director of Payments and Digital Finance, David Geale, disclosed that although the regulator will set high standards for crypto companies, a direct replica of traditional regulations would not suffice. “We start from the principle that if it is the same risk, you go for the same regulatory outcome. But then you have to recognise that some of these things are very different,” he said.
The regulator published the consultation paper that contained the plans to adjust the current requirements to the peculiarities of digital assets like Bitcoin. The authorities have observed that some of the obligations would be relaxed, whereas others would be strengthened to capture risks specific to the industry, such as vulnerability to cyberattacks.
Over the last five years, crypto firms located in the U.K. have been required to simply register with the FCA to prove that they are compliant with money laundering, counterterrorism financing, and identity checks. The government had indicated last year that it would transition to a complete regime of crypto trading and custody services. Since developments in the United States, where the Trump administration has become more permissive, have increased the stakes for London.
The notion that the formal regulation would provide consumers with a false sense of security over crypto investments was discarded by Geale. He indicated that the other risky financial products are already available to the populace. “It is a challenge, but it is a challenge that we have faced before. We need to always be very clear that this is high risk, so people should go in with their eyes open that they could lose all their money,” Geale added.
The regulator is still thinking of exempting crypto platforms from various parts of its handbook that are applied to conventional financial entities. That includes provisions stating that companies must “conduct business with integrity,” act with “due skill, care and diligence,” and “pay due regard to the interest of its customers and treat them fairly.”
The role of senior managers, governance structure, and internal mechanisms will also be less heavily regulated than those applied to banks or investment groups. The FCA explains this by arguing that crypto firms are not usually equally systemic risks.
Why is FCA Looking to Regulate Cryptoasset Firms Differently?
Other types of differences are associated with the nature of digital assets. Since cryptocurrencies are traded on distributed ledgers that do not use intermediaries, the regulator is not intending to conceptualize such technology as outsourcing, which would necessitate the implementation of extra risk controls. Besides, crypto providers would not be required to obey product oversight and governance regulations. The purchase of tokens will also not provide the customers with statutory cooling-off or cancellation rights due to the instability of prices.
Simultaneously, the regulator will be stricter in some spheres. They highlighted operational resilience as a priority and cited the $1.5 billion theft from wallet provider Bybit earlier this year as a warning. According to a Financial Times report, Geale noted, “If you think about the reliance on tech and the systems that sit behind this business, they are much more exposed to hacking. If you set yourself up as a 24/7 business and you can’t do that, then there is going to be a problem.”
The FCA is also consulting on open questions, such as whether to subject crypto to its consumer duty regulation, which requires any firm to be able to provide fair value to its customers. Also, it’s determining whether complaints are to be subject to review by the Financial Ombudsman Service.
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