FCA wants more power to supervise cryptoasset businesses

Rick Steves

The FCA stated its concern that the registration standards it is permitted to apply under the MLRs are far less demanding than those applicable under FSMA.

The Financial Conduct Authority (FCA) has called for legislative change as the UK’s financial watchdog is concerned with consumers’ safety beyond its remit.

The report recommends that internet companies should be required to control paid-for advertising, as well as user-generated content under the Online Safety Bill.

The legislation should also designate content relating to fraud offenses as ‘priority’ illegal content and so require monitoring and preventative action by platforms, the FCA argued.

As part of the FCA’s annual Perimeter Report – as part of its accountability to Parliament and to support regular dialogue with the Government – the regulator also called for amendments to the Financial Promotions Order.

Current exemptions to the order mean more ordinary investors are at risk of receiving financial promotions, including for high-risk products, that don’t have to comply with the FCA’s rules, said the agency.

Nikhil Rathi, Chief Executive of the FCA, said: ‘The annual perimeter report is an important part of our accountability to Parliament, particularly the Treasury Committee. The FCA is committed to being more innovative, assertive and adaptive. That means being more proactive at the limits of our regulation, working with partners and other agencies where we don’t have powers and setting out where we believe more powers are necessary.

‘We see real risks to consumers from outside our remit from both online advertising and from those using exemptions to sell products to ordinary customers. Change is needed and we will continue to push for powers where we need them.’

The FCA remit, which is decided by the Government and Parliament through legislation, determines which activities require FCA authorization and what level of protection consumers can expect.

The agency is also calling for legislative change in the Senior Managers and Certification Regime to payment and e-money firms.

One of the issues discussed in the report is anti-money laundering with a number of firms that are not authorized under FSMA but supervised by the FCA under the Money Laundering Regulation.

These firms include commercial lenders, securities registrars, and firms trading foreign exchange on their own account. And there is another group of firms supervised by the agency under the MLRs and for the most part not authorized under FSMA: cryptoasset exchange providers and custodian wallet providers (firms that safeguard cryptoassets or cryptographic keys on behalf of customers).

Together these are called cryptoasset businesses in the MLRs but this only applies where they are undertaking business in the UK not from other countries.

The FCA stated its concern that the registration standards it is permitted to apply under the MLRs are far less demanding than those applicable under FSMA.

“This means we do not have the same broad remit and powers to supervise and (where necessary) enforce against these registered firms for their activities as we would for authorised firms conducting regulated activities under FSMA.

“We consider that the regime could be strengthened if the criteria used to determine fitness or propriety included, for example, specific criteria in relation to adequate governance and financial resilience. We therefore welcome the call for evidence recently published by the Treasury, which expressly includes the question whether supervisory authorities under the MLRs have the powers they need to support an effective gateway into the MLR perimeter and therefore encompasses our concern.”

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