FCA has planned to exempt crypto groups from some of its rules as it integrates the sector into its regulatory framework from next year.
According to the Financial Times, representatives from the FCA’s department for payments and digital finance mentioned that simply copying traditional finance regulations is not a productive strategy for the crypto sector. The regulator’s proposals aim to adapt its existing rules to the unique nature and risks of crypto assets.
New rules for crypto providers
For the past five years, UK-based cryptocurrency groups have been required to register with the FCA to ensure compliance with AML, CTF, and KYC rules. Last year, the government announced plans to introduce a full regulatory framework for the UK crypto market, following the US’s adoption of a crypto-friendly administration, which put pressure on the UK to follow suit.
FCA representatives dismissed worries that by fully regulating crypto companies, the regulator would create a halo effect that would give consumers a false sense of security, as there is already access to several forms of high-risk investments. The exemptions from certain sections of its official handbook will be accompanied by tighter regulations to address the specific industry risks, such as cybercrime.
The principles that will not apply to crypto firms include stipulations that a group “must conduct its business with integrity”, with “due skill, care and diligence” and “pay due regard to the interest of its customers and treat them fairly”. Trading platforms will be given fewer strict requirements than banks or investment firms concerning rules for their senior managers, systems and controls, as they do not typically pose the same level of systemic risk.
Additionally, due to the volatile nature of crypto asset prices, companies offering them will not be required to offer customers a cool-off period or cancellation rights after purchase. The challenges of adapting some rules to the permissionless distributed ledger technology mean that transactions are often agreed directly between parties without any intermediaries. Thus, technology will not be treated as an outsourcing arrangement necessitating extra risk management by firms, and the sector will be exempt from product oversight and governance rules.
Moreover, the FCA plans to adopt stricter rules for crypto in some areas, such as those covering operational risks, including IT outages or cyber-attacks. The UK regulator aims to balance protecting consumers from risks with supporting the development of the new market. Some areas of crypto laws still remain undecided.
