Cryptocurrency Firms Secure Exemptions From Certain Regulations in the UK Finance Sector
The Financial Conduct Authority (FCA) in the United Kingdom has announced a new regulatory framework for the cryptocurrency industry, aiming to adapt existing rules to the unique nature and risks of crypto assets.
According to the consultation paper released by the FCA, crypto companies will face more relaxed requirements than banks or investment firms in certain areas, such as rules for senior managers and systems and controls. This leniency is based on the belief that crypto asset firms do not typically pose the same level of systemic risk.
However, the FCA will adopt more stringent rules for the crypto industry in areas like operational risks, such as IT outages or cyber attacks. This move follows the historic theft of $1.5 billion from wallet provider Bybit in February, which highlights the need for strong operational resilience controls across all crypto firms.
David Geale, the executive director for payments and digital finance at the FCA, emphasized that any changes would not mean lower standards. He noted that many of the FCA's chief principles will not apply to crypto trading platforms.
Geale also pointed out that a "lift and drop" of traditional finance rules would not be effective when applied to the crypto industry. Crypto assets have a different underlying technology and characteristics than traditional finance, requiring different regulations.
The Bank of England, on the other hand, plans to limit how many stablecoins individuals and businesses can hold. The central bank fears stablecoins could act as a channel for destabilized credit flows, loss of public trust in money, or contagion in financial markets.
Stablecoins could grow large enough to threaten the stability of the financial system if left unchecked. The FCA's proposals are designed to mitigate these risks while fostering innovation in the crypto industry.
Geale said that if the risk is the same, the regulatory outcome should be the same. He reiterated that the FCA's proposals are detailed in the new consultation paper.
The proposal, known as the "Cryptoasset Taskforce" or its associated regulatory framework, was announced on September 17, 2020. The report mentioned that these statements were made by Geale and were published by the Financial Times on that date.
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