The recent confirmation by the UK Financial Conduct Authority (FCA) that it is investigating 18 firms involved in the sale of crypto assets, such as Bitcoin, indicates a ramping up of regulatory focus on the controversial sector.
Until last year, the FCA’s approach was cautionary in nature, characterised by a series of warnings and alerts to consumers who may be at risk of losses from Initial Coin Offering (ICO) scams or having their fingers burned by trading in derivative products referencing these inherently volatile digital assets.
However, during the second half of 2018, the UK made major strides towards forming a clear framework for the future regulation of crypto assets. Both the Treasury Select Committee report on crypto assets (published in September 2018) and the Crypto assets Task Force report (October 2018) envisage a central role for the FCA in formulating and executing such regulation. It is clear that last year saw significant progress by the FCA, HM Treasury and the Bank of England in what is an incredibly complex and continually developing area.
The Task Force report sets out an ambitious timetable for further consultation by the FCA in 2019 on guidance for crypto asset activities currently within the regulatory perimeter as well as the potential prohibition of the sale to retail consumers of derivatives referencing certain types of crypto assets. It is also charged with continuing its work supporting innovative uses of the underlying distributed ledger technology (DLT) both in commercial applications and as a basis for an improved regulatory reporting system.
This work and its enhanced comprehension of the market may well embolden the FCA to take action in the year ahead against both unregulated firms engaging in crypto asset related work which it considers to be within the regulatory perimeter, and regulated firms carrying out unregulated crypto asset activities. It is perhaps surprising that the organisation has the bandwidth to devote attention to this issue in light of the other, rather more obvious challenge which the financial sector is facing at present. However, the FCA deserves credit for working with its sister authorities to establish the UK as one of world’s most innovative economies, whatever uncertainties may lie in the months ahead.