Posted 2 years ago | by Ben Armstrong

UK Watchdog FCA Signals New, Tough Line on Crypto Firms

The Financial Times today reported that the number of crypto firms being investigated by the UK’s financial regulator has surged by 74 percent in 2019. According to data obtained by the UK law firm Pincent Mason, The Financial Conduct Authority (FCA) is investigating 87 crypto companies, compared with 50 this time last year.

It would appear that the rise in investigations indicates a crypto crackdown, especially in light of the recent research that consumers lost $33 million in crypto and foreign exchange scams. Money and crypto fraud has more than tripled in the last year.

The FCA Gets Tough

Buying and selling cryptocurrencies is currently unregulated in the UK. Up until now, The FCA has adopted a “tech neutral” approach and has treated cryptocurrency businesses much like other financial services.

However, this approach is slowly coming to an end. In July, a watchdog organization proposed a ban on selling crypto derivatives to retail investors. In October, there was a consultation of the proposal and a decision is expected in 2020.

The FCA is fearful of the impact of crypto-derivative products on retail investors, judging them “impossible” to value and “akin to gambling.” Twenty-three billion crypto-derivative products have been traded this year.

New Rules for Cryptos in UK

The watchdog group also estimates that UK investors made total losses of $492 million (and profits of only $31 million) on crypto-derivatives in the 18 months between mid-2017 to the end of 2018.

In addition to this volatile market, derivative traders borrow two to one hunded times what they invest, and high trading costs are red flags for regulators. A blanket ban by the FCA would also be similar to actions being considered by Japan. Europe also imposed stricter regulations last year.

However, industry professionals believe that a hard-line approach is misjudged.

Too Tough for Business?

The World Federation of Exchanges (WFE), whose members include CME Group, Nasdaq and Intercontinental Exchange, urged the U.K.’s finance watchdog not to impose a ban on crypto-derivatives for retail investors.

Instead of knee jerk reactions, the WFE assets that the FCA should take time to understand the business of crypto firms.

To wit:

“…crypto derivatives should be treated in the same way as other derivative marketing and sales to retail customers—they should not be more harshly treated.”

Unfortunately, “It would take an earthquake for the FCA not to press ahead,” according to the author of an article published last week in The Economist.