FCA moves to boost US-UK crypto asset regulation

David Hamilton of Pinsent Masons said a speech, delivered by Nikhil Rathi at the Peterson Institute for International Economics in Washington DC, “highlighted two key messages” that crypto firms should examine closely. Rathi told delegates that the US and the UK had “agreed to deepen ties” on financial innovation and were “exchanging views on crypto-asset regulation and market developments”, including ‘stablecoins’ and the exploration of central bank digital currencies.

His comments come after the UK, US and Singapore announced the launch of the International Organization of Securities Commissions (IOSCO) taskforce on decentralised finance and crypto market integrity risks earlier this month. Rathi said: “These conversations are vital. We are demonstrably supporting responsible use cases for the underlying technology while ensuring it is not at the expense of appropriate consumer protection or market integrity.”

Hamilton said: “Clearly, we can expect increased cross-border cooperation with respect to crypto regulation. Countries have tended to develop their own methods for regulating the industry, with some imposing outright or extensive prohibitions on crypto activities and advertising. But others, including the UK and US having taken a more nuanced approach with varying levels of risk appetite.”

He added: “Mr Rathi’s comments are all the more significant in the context of the G20 Financial Stability Board’s (FSB) announcement earlier this month that it will consult on a new framework intended to promote international consistency in regulatory and supervisory approaches to crypto-assets and relevant markets. It will be interesting to see the FSB’s proposals.”

Hamilton added that Rathi’s speech also indicated “the rigour with which the FCA has assessed crypto firms’ applications for registration” under the 2017 Money Laundering Regulations (MLRs). He said: “Though some crypto assets fall outside the FCA’s regulatory perimeter, it has nevertheless been working to ensure that firms have adequate policies and procedures to comply with the MLRs. With regulatory authorities across a range of sectors taking an increasingly aggressive approach to MLR compliance, crypto firms must be sure to keep their financial crime compliance standards high post-registration.”

Rathi also outlined post-Brexit changes to the FCA’s remit. He told delegates that, having departed from the EU, the UK now has “a vital opportunity to further adapt our regulatory system to respond to the challenges we are seeing today” and to “bolster the global reach of our wholesale markets”.

Rachael Preston of Pinsent Masons said the speech demonstrated how the FCA “is embracing the opportunity to become a global player on the regulatory stage”. She added: “Expect to see a more collaborative, innovative and adaptive style of supervision in the future, with the FCA continuing to push the boundaries of the role of a financial regulator in modern society.”

Rathi said the FCA would maintain a “laser focus” on the quality of the data it collected, adding that the regulator’s decision to move some of its core systems to the cloud – along with investment in new technological solutions and analytical tools – was “speeding up case management and providing improved visibility of risk”. He said the FCA was now able to automatically scan more than 100,000 websites every day for fraudulent activity targeting UK consumers, taking down hundreds of such sites every year.

Preston said: “Yet again the FCA is emphasising the importance of data to the future of UK financial regulation, from both a regulatory and supervisory perspective. Technology solutions will also play an increasingly central role in the FCA’s modernisation plans and will be crucial in enabling it to respond quickly and effectively to emerging trends and threats. The question is whether such an approach can deliver the right outcomes to what is an ever more complex, nuanced and user experience-led market.”