Findings turned up by the U.K. Treasury Committee’s ongoing inquiry into the digital asset industry began to filter through to the public this week, with the Committee publishing written evidence submitted by Financial Conduct Authority (FCA), the regulator overseeing firms offering digital asset services in the country.
The FCA gave oral evidence before the committee on December 7 and promised to follow up on some of the committee’s questions in writing. The committee has now published that written follow-up.
The FCA’s submissions reveal that just 5% of firms that had applied for FCA authorization were accepted on the first attempt.
It also revealed that 85% of those that applied were rejected for failing to meet the minimum anti-money laundering and terrorist financing standards.
“In many cases, key personnel lacked appropriate knowledge, skills and experience to carry out allocated roles and control risks effectively and were unable to evidence they met the standards for registration,” the submission reads.
The FCA was also asked to comment on the collapse of FTX and the extent to which U.K. investors were affected. The submission explains that FTX was not licensed by the FCA in the U.K., and so the Authority has limited oversight over investor exposure to FTX. However, the FCA did note that public filings from FTX’s bankruptcy case state that 8% of the FTX group’s global customer base was in the U.K.: as a result, it might be inferred that 80,000 of FTX’s estimated million creditors are U.K. investors.
“We are in the middle of an inquiry into crypto regulation and these statistics have not disabused us of the impression that parts of this industry are a ‘Wild West,'” Committee chair Harriett Baldwin MP warns, commenting on the evidence.
The Treasury Committee launched the inquiry in July 2022, aimed at exploring the role of digital assets in the U.K. as well as the opportunities and risks they offer for consumers and businesses. At the time, Mel Stride MP, chair of the Treasury Committee, said:
“Crypto-assets have the potential to bring new and innovative changes to the U.K. financial system, the economy and broader society. However, there are also significant concerns around their use to launder funds, purchase illegal products, and evade international sanctions.”
“In recent months, the value of most crypto-assets has fallen dramatically. As a Committee, we will be investigating the opportunities and risks that crypto presents, where additional regulation may be required, and the lessons the Government can learn from other countries.”
At the same time, the U.K. has been forging new rules to govern digital assets and digital asset firms in the U.K., most notably via the long-awaited Financial Services and Markets Bill. The bill, which is currently before Parliament, would, among other things, broaden the scope of FCA powers to oversee digital assets. Currently, the FCA’s oversight is largely limited to ensuring that digital asset firms have appropriate anti-money laundering mechanisms in place.
The bill, in its current form, would give the FCA the power to regulate the sector more in line with its powers over traditional securities. One amendment, added in October, would prohibit the promotion of digital asset products to U.K. investors without authorization from the FCA.
The Financial Services and Markets Bill is expected to pass into law by Spring 2023.
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