UK’s FCA unable to regulate digital currency, national auditor says

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The Financial Conduct Authority (FCA) has failed in its mandate to regulate the digital currency sector, the U.K.’s parliamentary auditing body has claimed.

In a scathing report, the National Audit Office (NAO) assessed the efficacy of the FCA’s regulation of the U.K.’s financial sector. The agency oversees approximately 50,000 firms, which collectively generate £173.6 billion (US$218 billion) annually.

“There can be a significant delay between the FCA identifying an issue to tackle, and it taking regulatory action,” NAO said in its summary of the agency’s performance.

On digital currencies, the auditor says some of the transactions fall outside the agency’s jurisdiction. However, NAO said even for areas within its scope, it drags its feet.

The auditor singled out the FCA’s crackdown on digital currency ATMs as proof of the agency’s lack of urgency. The watchdog announced in January 2020 that all ATM providers had to adhere to anti-money laundering laws and obtain a license to serve U.K. investors. It then began engaging with ATM providers immediately after to steer them towards regulations.

However, “it did not begin taking enforcement action against illegal operators of crypto ATMs until February 2023,” NAO stated.

A key factor to the agency’s slow enforcement is its staff. In some cases, they lack the specialist skills to crackdown on novel digital currency activities. A high turnover at the agency has also had a great impact—in the past two years, the FCA has had to recruit and train over 2,000 staff members, but only 600 of these have been an increment to the overall headcount.

NAO further attacked the rate at which the regulator has processed VASP license applications. In 2020 and 2021, it received 158 applications but only approved 29. This forced it to create a temporary regime under which the applicants could continue operating as it processed their applications.

As the FCA dillydallies, U.K. investors continue to be targeted by digital currency scammers. In 2021, investors filed over 6,300 scam complaints, twice the 3,100 they reported the year prior. In the 12 months to March 2023, U.K. investors lost £306 million (US$389 million) to scammers. As CoinGeek reported earlier this year, scammers are taking advantage of the country’s lax company registration laws.

To curb the scams, other regulators have stepped in. This year, the National Crime Agency (NCA) created a new unit to tackle digital currency crime and increased the unit’s headcount in August.

“The FCA must complete its work on optimising its use of data, assessing whether it is achieving the outcomes it intends and whether it is able to direct resources to where they can have most impact,” commented NAO head Gareth Davies.

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