Saturday, October 1

Cryptocurrency regulation could give you a ‘halo’ of legitimacy, says UK watchdog

Regulators should step up protections for consumers investing in crypto tokens, but should also be aware that overreaching could backfire, warned the chairman of the UK’s Financial Conduct Authority (FCA).

In a new speaks Writing 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 entering the crypto sphere without proper awareness of the risks.

He highlighted the role of influencers and paid advertising in particular, noting that Kim Kardashian’s recent Instagram promotion of Ethereum Max, a new token issued by “unknown developers,” “may have been the financial promotion with the largest audience. . reach in history “.

While Randell reserved judgment on whether Ethereum Max is itself fraudulent, the vast scope of such a campaign and its potential to mislead poorly informed consumers should cause regulators to pause, he hinted.

Add to these dynamics such as retail investor hype, FOMO, and the proliferation of pump-and-dump crypto-related scams, Randell claimed that many consumers remain blind to the financial risks they are courting by relying on influencers for endorsement. and smart online token campaigns.

To illustrate his point, Randell underlined that around 2.3 million UK citizens currently own cryptocurrencies, 14% of whom have used credit “in a worrying way” to buy them. Furthermore, 12% of crypto holders, roughly 250,000 Britons, mistakenly believe that they will be protected by the FCA or the UK Financial Services Compensation Scheme should things go wrong, according to the FCA investigation.

Randell, however, is wary of going over the mark when it comes to the new asset class, stressing that UK consumers are free to engage in other unregulated speculative activities, from gold and foreign currencies to Pokémon cards. , despite the fact that “there is no shortage of consumer harm in many of those markets”:

“So why should we regulate purely speculative digital tokens? And if we regulate these tokens, will this lead people to think that they are bona fide investments? In other words, will the participation of the FCA give them a ‘halo effect’ that creates unrealistic expectations of consumer protection? “

Related: 90% of UK financial advisers reject cryptocurrencies and ‘meme stocks’

While the FCA currently regulates cryptocurrency exchanges and has banned the sale of crypto derivatives to retail consumers, Randell proposed that its measures going forward should start with a limited scope of two interventions, focused on stablecoins and security tokens.

Both, in his view, 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 red tape. Instead, he advocated for a moderate approach, in line with existing rules for other FCA-regulated entities, to ensure that token issuers and blockchain companies are solvent and transparent. He also noted the success of the FCA regulatory sandbox and its role in allowing developers to test their ideas in an isolated and supportive environment.

Beyond stablecoins and security tokens, Randell argued that the FCA should go further to target deceptive promotions of crypto assets, which it has already done. studying for more than a year. In mid-July 2021, the FCA created a £ 11 million (~ $ 15 million) fund to run an online marketing campaign that warns British people, especially young people aged 18-30, about the risks. associated with many cryptocurrency investments.