The digital asset industry in the United Kingdom is in dire need of tough regulations that can detoxify the nascent sector, the country’s top financial regulator has stated.
Speaking before the House of Commons, the chair and CEO of the Financial Conduct Authority (FCA) discussed some major issues facing the country’s financial industry. Digital assets were among the sectors they discussed, and they called for stringent regulations to stamp out crime and protect investors in the industry.
Bitcoin regulation needs to be “appropriately tough,” chair Ashley Alder told the House’s Treasury Committee. Alder took over as chair in February 2023, formerly serving with Hong Kong’s Securities and Futures Commission. As he took office, he pledged to be tough on digital assets, which he described as “deliberately evasive” and “a method by which money laundering happens in size.”
Under the proposed digital asset regulatory regime, U.K. virtual asset service providers (VASPs) would need to go through structural changes to comply, he believes.
“One of the questions in my mind is when you put in place a regulatory framework around crypto. The interesting aspect to this is the degree to which crypto would need to adapt and effectively detoxify in order to fit within that regime.”
Alder was responding to a letter sent to lawmakers by his predecessor, Charles Randell, in which he claimed: “speculative crypto is gambling pure and simple, and it should be regulated and taxed as such.” While he said he agrees with this view, he still believes that the sector must be regulated to stamp out money laundering and other crimes.
Alder believes that a sizeable number of VASPs have been deliberately evasive with regulators. He stated that most of them have multiple conflicts of interest and fail to implement even the most basic safeguarding of customer assets.
FCA: We can’t protect investors from losses
On his part, FCA CEO Nikhil Rathi told regulators that regulation is necessary. However, he pointed out that the FCA’s ability to protect investors from losses if they choose to invest in digital assets is limited.
“Whatever we do on regulation, we are not going to be able to put in place a framework that protects consumers from losses, and we absolutely and under no circumstances whatsoever, should people expect compensation through this,” he stated.
Nikhil revealed that he has never invested in digital assets, but he believes that U.K. investors should have the ‘free choice’ to purchase these assets if they like. It is, however, “profoundly inadvisable” for investors to put their entire life savings into these assets.
In the U.K., most investors have put “less than a thousand pounds” into digital assets, which the FCA chief executive says is very encouraging.
The U.K. ranked 17th in Chainalysis’ Global Crypto Adoption Index last year and was only one of two developed nations, alongside the U.S., to make it into the top 20. According to Bankless Times, about 9.8 million people in the U.K. own digital currencies, equating to 15% of the country’s population.
The country’s rapid adoption comes with its caveats. For instance, when FTX collapsed, the U.K. was among the countries that felt the impact, with one report revealing that at least 80,000 British investors lost their money to Sam Bankman-Fried’s exchange.
The U.K. awaits the passing of the Financial Services and Markets Bill (FSMB) this year. This bill will give the FCA increased oversight over the digital asset industry and will be the first proper legislation that the country has passed on Bitcoin since Brexit.
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