Crypto Regulation Could Give It A ‘Halo’ Of Legitimacy, Says UK Watchdog

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Regulators need to strengthen protection for consumers investing in crypto tokens, but also keep in mind that overbreadth could backfire, the chairman of the UK’s Financial Conduct Authority (FCA) has warned.

In a new speech written for the Cambridge International Symposium on Economic Crime, Charles Randell, chairman of the FCA and the payment systems regulator, said that there is currently a real problem with consumers delving into the sphere. crypto without being fully aware of the risks.

He highlighted the role of influencers and paid advertising in particular, noting that the recent Instagram promotion of Ethereum Max by Kim Kardashian, a brand new token issued by unknown developers, was perhaps the financial promotion with the biggest hearing history. .

While Randell reserved judgment on whether Ethereum Max itself is fraudulent, the wide reach of such a campaign and its potential to mislead under-informed consumers should give regulators pause, a- he hinted.

In addition to such dynamics such as the hype from retail investors, FOMO and the proliferation of crypto-related scams, Randell claimed that many consumers remain blind to the financial risks they court by trusting the recommendations of influencers. and smart online token campaigns.

To illustrate his point, Randell pointed out that around 2.3 million UK citizens currently own crypto, of which 14% have worryingly used the credit to buy it. In addition, 12% of crypto holders around 250,000 Britons mistakenly believe they will be protected by the FCA or the UKs Financial Services Compensation Scheme if things go wrong, according to FCA research.

Randell nevertheless remains cautious about exceeding the bar for the new asset class, stressing that UK consumers are free to engage in other unregulated speculative activity, from gold and foreign currencies to Pokemon cards despite the fact that there is no shortage of consumer damage in many of these markets:

So why should we regulate purely speculative digital tokens? And if we regulate these tokens, will that make people think they are bona fide investments? In other words, will the involvement of the FCA give them a halo effect that raises unrealistic expectations in terms of consumer protection?

Related: Crypto And Meme Shares Rejected By 90% Of UK Financial Advisors

While the FCA currently regulates cryptocurrency exchanges and has banned the sale of crypto derivatives to retail consumers, Randell has proposed that his actions going forward begin with a limited scope of two interventions, focusing on stablecoins and security tokens.

Both, he said, have the potential to offer useful and encouraging new ideas for cross-border payments, financial infrastructure and financial inclusion, and should not be hampered by excessive bureaucracy. Instead, he argued for a moderate approach, in line with existing rules for other FCA-regulated entities, to ensure token issuers and blockchain companies are creditworthy and transparent. He also highlighted the success of the FCA regulatory sandbox and its role in allowing developers to test their ideas in a supportive and isolated environment.

Beyond stablecoins and security tokens, Randell argued that the FCA should go further in targeting deceptive promotions of crypto assets, which it has already been studying for over a year. In mid-July 2021, the FCA created a £ 11million (roughly $ 15million) fund to run an online marketing campaign warning Britons, especially 1830-year-olds, of the risks associated with many investments. cryptographic.

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