The Financial Conduct Authority (FCA) has said it does not believe the financial services industry should have to take on the costs of failures from firms promoting cryptocurrencies and assets.
It also implored government to learn lessons from the rushed and ultimately failed introduction of the pensions freedoms that this should not be repeated with cryptoassets.
Advisers in the health and protection insurance market are already facing soaring Financial Services Compensation Scheme (FSCS) levies and other regulatory fees to cover costs originating in other parts of the market.
With the government consulting on its desire to create a world-leading crypto-market regime, it appears likely that this sector could come under the FCA’s remit, potentially increasing fees further.
Luring in high school students
However, in a scathing rebuke of the sector, FCA chairman Charles Randell noted how far many crypto firms would have to improve to be accepted and the attraction to the market of financial crime and money laundering.
As one example, he highlighted that high school students were already being lured into seeking quick profits from crypto promotions despite recognising that the sector was akin to gambling.
Speaking at the Centre for Commercial Law Studies at Queen Mary University of London, Randell (pictured) stressed that working in partnership with the government was vital.
Randell warned that the regime for regulating speculative cryptocurrency and cryptoassets should be openly debated and answered before the FCA was given responsibility for the sector.
And he emphasised that mistakes such as the introduction of the pension freedoms which were carried out too quickly must be learned from and avoided.
“The project to bring speculative crypto into regulation also needs a workable operational plan which the FCA – and other regulators where appropriate – are fully signed up to delivering,” Randell said.
“That means realism about how long we need to prepare. Realism about how far many crypto firms will have to improve before they can be authorised. Realism about how consumers will actually behave online, supported by testing.
“And realism about the challenges of supervising a decentralised global activity which is an increasingly attractive conduit for organised financial criminals and money launderers.”
No FSCS protection
Randell also said he did not believe the existing financial services industry should have to cover for the ills of crypto firms if they eventually came under the regulator’s reach.
“Regulating crypto also means deciding how the FCA will raise the money to pay for the very significant costs of this additional regulation, including the question of whether the financial services industry as a whole should be exposed to the costs of failing crypto firms through the Financial Services Compensation Scheme,” he continued.
“I think it shouldn’t, and that consumers should have to acknowledge that fact before an adviser helps them to buy crypto.”
Randell added it was essential that “there are strong safeguards to ensure that all interests – not just the interests of people making money from pushing crypto products, but also the interests of the people whose savings will be put at risk – are heard.”