FCA’s Andrew Bailey warns of risks stemming from cryptoassets

Maria Nikolova

He added, however, that the FCA is keen to see the potential of the underlying technology.

Technological change and innovation are among the forces actively shaping the work of the Financial Conduct Authority (FCA), Andrew Bailey, Chief Executive of the FCA, said in a speech today.

He noted the need to consider the threats that come from some forms of innovation and the new issues they can pose.

“A good example of this is cryptoassets. We are keen to see the potential of their underlying technology, and do not rule out roles for cryptoassets themselves” – Andrew Bailey, Chief Executive of the FCA.

Mr Bailey warned of the risks associated with cryptoassets: not least in the question of whether the consumers who use them understand the asset and price volatility they involve. He added that the FCA is working closely with the Treasury and Bank of England to assess these issues and come up with appropriate responses.

Just yesterday, John Glen, Economic Secretary, HM Treasury, had to respond once again to questions concerning cryptocurrencies. In particular, he had to explain that “the Chancellor has not had any formal discussions with the Bank of England about a state-backed digital currency”.

He added that whereas the Bank of England is not planning to create a central bank-issued digital currency, it has been carrying out research to understand any potential implications.

Today, Mr Bailey stressed the importance of striking the right balance between regulation which is robust and effective but that also enables change to occur which will benefit consumers. That is why the FCA put sso much emphasis on the work it does with Project Innovate and its regulatory sandbox.

The sandbox, as you may be aware, allows firms to test innovative products and services in a live environment while making sure that consumers are protected in the right manner. It is part of Innovate, an initiative which was launched in 2014 to promote competition in the interest of consumers. Since its inception Innovate has had over 1200 applications and has supported more than 500 firms.

The FCA received a total of 69 applications to cohort four of the regulatory sandbox, an increase on the number of applications to cohort three, with 29 firms to proceed to test. The successful applications come from various sectors, locations and firm sizes. Areas covered include consumer credit, automated advice and travel insurance.

Over 40% of companies accepted to cohort four are using distributed ledger technologies (DLT). Of these, six are using DLT to automate the issuance of debt or equity. Two are using DLT to support the provision of insurance. Other technology applied includes geo-location technology, use of Application Programming Interfaces (APIs) and artificial intelligence.

Eight firms (27%) are operating in the wholesale sector.

The regulator has accepted a small number of firms that will be testing propositions relating to cryptoassets. The FCA says it is keen to explore whether, in a controlled environment, consumer benefits can be delivered while effectively managing the associated risks.

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