UK FCA Chairman: Recommends narrowing regulatory focus on stablecoins and speculative tokens

As regulators around the world tighten their grip on the cryptocurrency industry, the UK’s Financial Conduct Authority (FCA) has warned of the risks associated with crypto investments.

In a new speech written for the Cambridge International Economic Crime Symposium, Charles Randell, chairman of the FCA and the Payment Systems Regulator, singled out the role that influencers and paid promotions play in manipulating users and putting them in harm’s way.

He noted that “legislation is needed to permanently and consistently address the problem of online fraud in paid advertising.”

He specifically mentioned Kim Kardashian, who recently did a paid promotion for a cryptocurrency. The regulator noted that the developers behind the currency were anonymous and that due to her millions of followers, this was "probably the largest financial promotion in history." He used this as an example to highlight the potential for such far-reaching campaigns to mislead novice investors.

He believes that such endorsements create investor hype and FOMO, and some consumers may know little about their own risks.

Another point of contention for Randell was the risks associated with speculative tokens, stressing that they are not regulated by the FCA. Nevertheless, he mentioned that approximately 2.3 million British people hold such tokens, of which 14% hold them on credit, further increasing their risk. He went on to call for greater regulation of such products.

However, the regulator said that caution is needed in the regulatory space, as overreaching could lead to a stunted innovation. He also pointed out that since Britons are free to invest in other speculative assets, why should digital assets be an exception? He even said that this could create a “halo effect” that “raises unrealistic expectations of consumer protection.”

Regardless, Randell suggested narrowing the regulatory focus on stablecoins and speculative tokens, while also noting that both assets have great potential. Moreover, they offer “useful new ideas” for cross-border payments, financial infrastructure, and financial inclusion.

To this end, he suggested a soft approach going forward that is consistent with existing rules for other entities regulated by the FCA to ensure transparency for blockchain companies and service providers.

“Regulators should have the power to take action to mitigate potential harm to consumers from purely speculative tokens, particularly by ensuring that trust in the technology as a whole is not undermined by bad actors in this space,” he said.

In addition to these assets, Randell is particularly keen to target misleading promotions of crypto assets. He said it is “imperative that any regulation of crypto asset promotion clearly highlights the risks and does not give the impression that the tokens themselves are regulated or have regulatory approval.”