FCA won’t rule out role for cryptoassets but also flags up risks

The Chief Executive of UK financial regulator, Financial Conduct Authority, FCA, has said that, whilst his organisation is firmly a supporter of innovation, it must balance this against threats and new issues that can arise.

In a speech during the regulator’s Annual Public Meeting today, Andrew Bailey stated that a good example of this is cryptoassets. “We are keen to see the potential of their underlying technology, and do not rule out roles for cryptoassets themselves,” he commented.

“But the risks are evident too: not least in the question of whether the consumers who use them understand the asset and price volatility they involve. We are working closely with the Treasury and Bank of England to assess these issues and come up with appropriate responses.”

Good practice

In June, the FCA wrote a letter to UK bank bosses which focused on dealing with customers who hold crypoassets.

“As evidence emerges of the scope for cryptoassets to be used for criminal purposes, I am writing regarding good practice for how banks handle the financial crime risks posed by these products,” said FCA Executive Director of Supervision Jonathan Davidson.

He recognised that there are motives for using cryptocurrencies that have nothing to do with crime, including “using them as high-risk speculative investments or as a means of funding innovative technological development.”

Davidson, however, warned, “this class of product can also be abused because it offers potential anonymity and the ability to move money between countries. You should take reasonable and proportionate measures to lessen the risk of your firm facilitating financial crimes which are enabled by cryptoassets.”

The FCA official recommended CEOs increase their scrutiny of clients who do business with cryptocurrencies and their activities when offering them banking services. He mentioned specific services which may require further review such as “where your firm offers services to cryptoasset exchanges which effect conversions between fiat currency and cryptoassets and/or between different cryptoassets; trading activities where your clients’ or counter-parties’ source of wealth arises or is derived from cryptoassets; where your firm wishes to arrange, advise on, or take part in an initial coin offering (ICO).”