UK Audit Office questions FCA's oversight of cryptocurrency industry

The UK's National Audit Office (NAO) has expressed reservations about the effectiveness of the Financial Conduct Authority (FCA) in overseeing the cryptocurrency industry. In its report titled ‘Financial services regulation: adapting to change,’ the NAO noted that the FCA exhibited a sluggish response to and action against illicit activities within the crypto sector.

According to the report, the FCA took nearly three years to address illegal operations involving crypto ATMs, with the closure of 26 such ATMs announced in July 2023 as part of a coordinated investigation. The NAO emphasised that, despite the FCA mandating compliance with anti-money laundering regulations for crypto-asset firms since January 2020, enforcement actions against illicit crypto ATM operators only commenced in February 2023.

The NAO attributed the delay in registering crypto firms seeking regulatory approval to a lack of specialised personnel with crypto expertise. The report stated that the shortage of crypto skills resulted in a prolonged registration process for crypto-asset firms under money laundering regulations.

According to cointelegraph.com, since January 2023, the FCA had granted regulatory approval to only 41 out of 300 crypto firm applications submitted since the implementation of rules in January 2020. This delay coincided with the FCA's release of guidance materials to assist crypto firms in understanding the new crypto promotion rules implemented in November 2023.

The updated rules focus on how crypto firms are permitted to promote their services to customers. Among the highlighted issues are instances where crypto firms make claims about the ease of using crypto without adequately highlighting associated risks and the inadequacy of small-font risk warnings.

Other developments from the FCA

In December 2023, the Financial Conduct Authority recommended an extra set of rules to maintain access to cash for personal and business customers across the UK. The announcement followed new capabilities granted to the FCA by the Financial Services and Markets Act 2023. In its proposals, the FCA specified that banks and building societies will need to assess gaps in access to cash, with the assessments being required to take into consideration factors such as demographics and transport. When a gap is identified, firms need to act to address them.

According to the FCA’s officials, even if there is an increasing shift towards digital payments, over 3 million consumers will rely on cash for their daily transactions, especially individuals who may be vulnerable, as well as many small and medium-sized enterprises (SMEs). The FCA also highlighted the importance of supporting consumers impacted by recent developments.