TOUGH rules were needed to “detoxify” crypto to remove conflicts of interest, safeguard customer assets and force through radical changes to business models, Britain’s financial watchdog said today (Wed).
The Financial Conduct Authority’s (FCA) new chair Ashley Alder said rules for crypto should be just as tough as for risky activities in mainstream finance. Britain plans to regulate crypto under a new financial services law this year.
A regulatory regime the same as for conventional finance would see crypto business models change radically, Alder said.
“One of the questions in my mind is when you put in place a regulatory framework around crypto, the interesting aspect is the degree to which crypto will need to adapt and effectively detoxify to fit into that regime,” he added.
Some 85% of crypto firms who applied for permission to operate in Britain were rejected by the FCA because they could not comply with basic anti-money laundering safeguards.
Some firms in the sector were evasive, with near deliberate multiple conflicts of interest and huge issues around proper safeguarding of customer assets, Alder told parliament’s Treasury Select Committee.
Regulators have taken a harder line on the sector have a crash in bitcoin values, and the collapse of crypto exchange FTX highlighted how many activities were conducted under one roof without safeguards.
The FCA and police have also swooped on suspect illegal crypto cashpoints in London to protect consumers.
Alder was asked by lawmakers to respond to a letter from his predecessor, Charles Randell, to the committee in which he said that “speculative crypto is gambling pure and simple”, and should be regulated and taxed as such, with levies to support debt advice and addiction services.
“If the issue and trading of speculative crypto are instead treated as financial services, conferring the ‘halo’ of financial services regulation, then increased consumer loss and calls for compensation provided by taxpayers or financial services levy payers will inevitably follow,” Randell wrote.