Regulators around the globe are fretting how to deal with cryptocurrencies such as bitcoin. The UK’s response displays a very British form of bureaucratic genius.
The Financial Conduct Authority has created an arduous vetting process for crypto businesses that are seeking official registration and with it a measure of legitimacy. The high bar ensures many applicants simply give up. That allows the FCA to kick the can down the road (again) by extending a waiver on trading without full registration.
The watchdog is in something of a bind. Its regulatory remit covers the City of London, which needs to woo all manner of financial services in the wake of Brexit. That includes the burgeoning crypto market. But the FCA is also on watch against attendant nasties, including the money laundering that is rife in the UK capital.
It falls to the City watchdog to ensure crypto exchanges are not used as virtual laundromats to rinse dirty money. But delays, which have led to some firms waiting for eight months before even being contacted, suggest the FCA is ill-equipped for the job. All this consists of is registering cryptoasset businesses. The regulator has no subsequent role protecting consumers.
So far, the FCA has awarded just five licences to four companies. About 90 companies have temporary registrations, which will now extend through to end-March 2022.
Are standards reassuringly rigorous? Or is the FCA out of its depth? Its tardiness, howl impatient companies, is a lost opportunity. Quoting data from Tracxn, a data group, just 6 per cent of the $15bn invested in the broad crypto industry last year went into the UK, almost a third of China’s share and a fraction of the dominant US. As with stock exchanges, there is ample scope for regulatory arbitrage.
Cryptocurrencies are relatively new to most regulators and banks. The FCA has at least signalled it is in the game. This is the second extension it has granted and, at eight months, it is a generous one.
In the US, the Securities and Exchange Commission has called for tougher regulation of crypto exchanges. Hong Kong requires them to be licensed by the Securities and Futures Commission and penalties for offenders are tough.
“Discretion is the better part of valour” appears to be the FCA’s motto. While it plays for time, cryptocurrencies may implode or bolder authorities show how to regulate them.
