The U.K. Financial Conduct Authority (FCA) is calling for cooperation with crypto companies to develop the “right” regulatory framework for the sector.
“We want industry’s input to make sure we get the future regulatory regime for crypto assets right,” Sarah Pritchard, executive director of FCA, said during the City Week conference in London.
“Let’s work together, to shape our rules and regulations to benefit markets, consumers and firms as crypto goes from niche to mainstream.”
By engaging early with financial authorities in developing crypto regulations, Pritchard said these firms would be prepared when the laws come into force later.
— Financial Conduct Authority (@TheFCA) April 25, 2023
According to Pritchard, crypto used to be a “one-time symbol of alternative rebellion,” but more people have begun adopting digital assets in recent years.
She explained that digital assets and blockchain technology created opportunities for a more efficient financial system, increasing the urgency to develop sound legislation for the crypto sector.
The FCA executive said her agency’s jurisdictions are currently limited to ensuring that crypto companies operating in the U.K. comply with Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) laws, standard regulations imposed on global financial institutions.
Pritchard said clear legislation was necessary as it would give the FCA “more powers” to oversee the crypto industry. The U.K.’s crypto community will see several tangible changes once these legislations have taken effect, such as advertisements of high-risk assets.
The new regulation on advertising will punish companies that breach its terms, which include misleading consumers or downplaying the risk of such investment. Once the government implements the law, companies have four months to change their promotional materials to fit the new standards.
Last month, FCA officials told the U.K. parliament that crypto laws were inevitable. The financial regulatory body has suggested lawmakers include crypto regulations in the Financial Services and Markets Act.
The FCA has supported crypto firms that aim to enter the U.K. market over the past years. Pritchard, however, said that almost three-quarters of foreign applicants were rejected or withdrew their requests for a U.K. license.
Authorities usually rejected applicants because they did not provide sufficient information about their business operations, per Pritchard’s statement.
Analysts noted that the U.K. authorities’ move was a stark contrast to the approach implemented by their U.S. counterparts. Industry actors in the U.S. claim that the country’s financial regulators aim to “quash” the crypto sector instead of collaborating with them.
In the U.S., several financial agencies like the Securities and Exchange Commission (SEC) face criticisms from the crypto community due to their strict monitoring and unclear standards.
SEC chairman Gary Gensler said traditional security laws could apply to most digital assets, while industry leaders asserted that crypto required a different regulatory approach than conventional securities.
Crypto players also said the U.S. financial authorities’ actions against the sector could hamper its growth and force companies to operate offshore.
U.K. aims to become global crypto hub
Earlier this year, the U.K. government affirmed its commitment to turn the country into a global crypto hub.
Andrew Griffith, economic secretary to the U.K. Treasury, said there were several benefits that the country would obtain from embracing digital assets and its underlying technology, including blockchain and distributed ledger technology (DLT).
Griffith acknowledged the challenges in developing the crypto sector, especially after a series of crypto company implosions in 2022, including the high-profile failure of crypto exchange FTX.
The Conservative parliament member said those events highlighted the sector’s vulnerabilities and provided lessons for industry participants about poor practices in crypto.
The British government plans to explore various areas within the crypto sector, including the development of a central bank digital currency (CBDC) by the central bank. Sources have reported that Rishi Sunak’s administration is also looking to increase the competitiveness of the country’s tax system to boost growth in the digital asset market.