The crypto world is operating at two speeds at the moment. Companies are going bust, investors are tallying up lost billions, while there is little oversight from regulators despite both the risks to consumers and heavy use of crypto in money laundering and other illegal transactions, like drug sales.
The current ‘crypto winter’ has seen prices of Bitcoin and other crypto assets plunge, while whole exchanges have gone under. Given that some often act like banks, this means deposits and coin holdings have disappeared alongside trading platforms.
The US has led the way in terms of regulation over cryptocurrencies, including over niche financial practices such as yield farming, where owners lend their coins to others who then pay them a form of interest. But it has operated on a model where the Securities and Exchange Commission (SEC) only defines the boundaries of legality when it believes crypto firms have crossed them, rather than setting clear rules in place initially.
Regulation in the UK has also been erratic, with millions of people already trading in crypto while on a consumer level the Financial Conduct Authority (FCA) has limited powers given the international nature of crypto trading.
Scottish National Party MP Jane Cameron is chair of the All-Party Parliamentary Group (APPG) on crypto and digital assets, which has launched an inquiry into the sector, aimed at supporting former chancellor Rishi Sunak’s goal of making the UK a crypto hub.
She said the US was not a perfect model for the UK to copy in terms of consumer protection rules. “There’s a different culture to some degree in the US, in terms of individual responsibility, financially [speaking],” she said.
“I think we’ve always been slightly more conservative here with a small ‘c’ in terms of protection, and so I think while something might be workable and seem like the right approach for the US, it doesn’t then mean that is going to be something that the UK would then feel is appropriate here.”
The APPG report will be debated in parliament and also potentially feed in to the next prime minister’s crypto strategy. Sunak has strongly backed the industry, while Truss has made supportive statements in the past.
The sector itself will have a big say in the report – the APPG is supported by lobby group Crypto UK. Cameron said the APPG’s goal with the inquiry was to work out how to “help support and fulfil the government’s aim to make the UK a crypto hub internationally” and educate MPs about the industry. She added that she would not support a “race to the bottom” on crypto regulation, however, and that consumer protection would be at the forefront of government policy.
Recent rulings have shown the limitations of existing FCA and Advertising Standards Authority (ASA) powers.
Earlier this month, the ASA ruled Premier League club Arsenal had posted misleading crypto ads. The penalty was that it should not run the ads again.
The FCA can block operators from registering in the UK, although CryptoUK and companies themselves have said the vetting process was slow and at times incompetent. The FCA said “a relatively large number of [the 200] applications to us have been of poor quality and many of our assessments have identified significant problems”.
There is also plenty still up in the air: new rules around crypto advertising will be put in place “once the Treasury formalises legislation to bring these into our remit”, the FCA said this month. For now they remain with the ASA, which has limited penalties to hand out.
Global crypto exchange Binance has highlighted the FCA’s current weaknesses by finding a new partner and continuing to sell derivatives to UK investors despite the regulator saying it was “not capable of being effectively supervised” and therefore not allowed to sell financial products or securities in the UK.
There are several ongoing reviews at the moment, but government action will likely be limited until a new prime minister is in place. The FCA’s guidance remains to investors that they “should not buy these products unless they are prepared to lose all their money”.
– with Lauren Eley
