Speaking at the Regulation of Cryptocurrencies event, London, Christopher Woolard, Executive Director of Strategy and Competition at the Financial Conduct Authority [FCA], identified the major risks associated with crypto assets, and outlined the options to tackle the threats.
Following significant adoption increase in recent years, the Taskforce has brought together Her Majesty’s Treasury [HMT], the Bank of England, and the FCA, to explore the impact of Distributed Ledger Technology [DLT] and crypto assets on financial services, he said. Refering to the harms that crypto assets could bring “to consumers, to market integrity and the risk of financial crime”, Woolard stated:
“The FCA, HM Treasury and the Bank of England are each taking a number of steps over the coming months to address these harms and to encourage future beneficial innovation.”
Furthermore, Woolard said that it is very likely that UK businesses and consumers will use crypto assets in increased numbers. He added that there are benefits to this, but equally there are risks involved, and set forth a plan on how to tackle risks and minimise harm to consumers. Handling these risks will include adopting domestic regulations, as well as international cooperation, he stated.
He noted that crypto assets demonstrate a benefit by making existing processes like international money remittance and issuance of debt instruments, cheaper and easier. He went on to say that although he and the Financial Stability Board do not view crypto assets as a risk, it is vital to remain vigilant.
The FCA’s first plan of action is to find which tokens fall within their regulatory perimeter, Woolard said. Her Majesty’s Treasury will then assess if an extension of regulations is necessary to encapsulate crypto assets with features comparable to securities.
According to him, there is also a concern that the consumer buys a derivative product based on an exchange token with market integrity issues, like volatility and complexity. To tackle this, he stated, FCA will consult and decide whether the said crypto asset’s derivatives [options, futures and transferable securities] may be sold.
“To combat financial crime risks, the Treasury will undertake one of the most comprehensive responses globally to the use of cryptoassets for illicit activities by applying and going further than the existing directive, the fifth EU Anti-Money Laundering Directive (5AMLD)”
He further added that the Treasury is looking to apply, and broaden the scope of, 5AMLD, and counter-terrorism financing regulations. HMT will consult in early 2019 on whether and how exchange tokens, as well as related actors such as exchanges and wallet providers, could be regulated effectively, he said.
Woolard concluded that the goal of the Taskforce is to ward off risks, combat financial crime, safeguard market integrity and ensure consumers are insulated from harm.