The Financial Conduct Authority (FCA) regulates 58,000 financial service firms and markets in the UK. As with US regulators, there is a gray area in which the FCA has authority. Yet, they are investigating ICOs on a case-by-case basis according to their scope of jurisdiction. Currently, the FCA is looking into 24 cryptocurrency businesses, and has begun developing several whistleblower reports in 2018 according to the Financial Times.
As with US policy, the UK has a process for Freedom of Information requests. Moore Stephens, an accountancy and consulting firm has filed such a request with the FCA, and was informed that the agency was probing the activities of 24 allegedly unauthorized cryptocurrency businesses to determine whether they would “be carrying on regulated activities that require FCA authorization.”
ICOs and the cryptocurrency industry in general have captured the attention of regulators everywhere as they try to determine what protections are in place for investors. In the US, regulators have already charged a number of ICOs with fraud. A positive outcome was to identify and prosecute actual fraudsters. A negative outcome was that it resulted in potential investors becoming skeptical of an otherwise legitimate market of ideas and innovation. The outcome of the latest FCA probe is not clear, but we may attribute a portion of the recent downturn in the cryptocurrency market as a result of regulators clamping down on the industry.
It is true that cryptocurrency prices are vulnerable to manipulation, and there are those who believe that government intervention is required to identify any associated criminal activity. In the UK, the FCA is not directly responsible for monitoring cryptocurrency and its derivatives, since they are classified as financial instruments. However, ICOs have a wide range of utilities and financial aspects that arguably places some of them under the FCA’s authority, depending on how they are structured.
The Bank of England has already insisted on increased oversight of cryptocurrencies. Mark Carney, the governor of the Bank of England said that this oversight should extend to exchanges that clear digital currencies. Granted, digital currency is a direct competitor to fiat currency, and by design, many cryptocurrencies are intended to be an alternative to government-controlled economics.
The FCA is not the only regulatory body in the UK that is looking into cryptocurrencies. The UK parliament’s Treasury Committee has launched an inquiry as well, looking into cryptocurrencies and also distributed ledger technology in general.
The FCA said that it would “continue to monitor the appropriateness of the existing regulatory framework.” In other words, this probe may only be the beginning. The agency has already flagged the cryptocurrency market as at risk of market manipulation and money-laundering. It has also issued warnings against the dangers of exceptional price volatility for retail investors.
As with banks in the US, UK banks have been shying away from cryptocurrency investing, citing issues such as anti-money laundering (AML) when determining the sources of transactions. However, the wall is not unbreachable. Barclays has opened up a UK account for Coinbase, a US-based digital exchange. And as with US banks, we may see UK banks begin to explore blockchain technology with in-house projects.