Former Chair of the UK’s Financial Conduct Authority (FCA) Charles Randell, (in photo above), has raised a red flag over the government’s proposed regulations in the crypto space. This could have profound implications for the crypto industry.
Randell, who left his role at the FCA last year, has expressed concerns that the UK’s plans to categorize crypto assets as traditional investments could expose investors to significant risks, leading to potential “consumer harms.”
Warning from financial watchdog veteran
In a striking critique, Randell emphasized that treating cryptocurrencies as conventional investments could lead to a situation where “retail crypto speculation firmly enters the mainstream,” even though fraud has become a prevailing characteristic in the crypto industry. This contentious statement comes following the UK government’s unveiling of its intention to regulate cryptocurrencies in a manner akin to the traditional financial sector. Such a move would necessitate authorization by the FCA for all crypto companies, asserting that they should adhere to the same standards expected of traditional financial service activities, proportionate to the risks they present. The government’s stated objective is to bolster investor protection.
Crypto regulation gains momentum
Calls for regulatory oversight of the cryptocurrency industry have intensified over the past year, primarily driven by the catastrophic collapse of the FTX exchange, which resulted in significant losses for numerous retail investors. However, Randell’s reservations centre around the government’s classification of crypto assets as investments, a distinction that will permit these assets to be offered in UK markets under a document that closely resembles a prospectus for shares but lacks many of the same regulatory safeguards.
Lack of consumer protection evaluation
Randell has lambasted the government for not adequately quantifying the potential consumer harms associated with categorizing cryptocurrencies as regulated investments. The Treasury claims support for its proposals from “the large majority of respondents” to a consultation earlier this year. However, Randell, now a consultant at the law firm Slaughter and May and a commissioner at the Financial Inclusion Commission, alleges that the government’s statistics are skewed since most of the respondents stand to profit from the crypto sector’s expansion.
In a scathing critique posted on LinkedIn, Randell argues that the government’s approach fails to address the potential downsides adequately: “[The government] asserts that allowing this ‘technology’ in the retail space will bring unquantified ‘benefits,’ including jobs and taxes. There is no attempt to quantify the consumer harms that could result from holding crypto out as a regulated investment.”
UK’s ambition as a “Crypto Hub”
The UK government is determined to position the country as a global “crypto hub” despite the ongoing struggles within the crypto sector. The FCA, in particular, has been at odds with ministers over their enthusiasm for an industry that has seen high-profile companies collapse, leading to substantial losses for both individual and institutional investors.
Randell, who has previously spoken about the political pressure he encountered during his tenure at the FCA regarding the crypto sector, believes that such interference will persist. Consequently, he doubts the FCA’s ability to implement any new crypto regulations effectively, rating the chances as “low.” He posits that if the FCA tries to enforce the requirements approved by ministers, it can anticipate a letter from a minister requesting leniency.
City minister Andrew Griffith, just last month, urged the FCA to adopt a more relaxed approach to the new crypto advertising rules, calling for “forbearance.” The government intends to introduce legislation to implement these new crypto rules early in 2024, but it has not yet responded to Randell’s recent criticisms.
The crypto industry continues to be a hot topic in financial circles, with this recent warning from a former financial regulator adding to the ongoing debate surrounding cryptocurrency regulation in the UK. As the crypto landscape evolves, the government faces the challenging task of balancing its ambition to be a global crypto hub with the need to protect investors and consumers from potential risks and harms. The outcome of this ongoing regulatory saga is likely to have far-reaching consequences for the crypto industry and its participants.