FCA will not regulate bitcoin

By Roger Baird on 1st August 2019

Fintech

The regulator said digital currencies fall outside of its regulatory powers.

FCA will not regulate bitcoin
Image source: Jason Appleton from Pexels

The City’s watchdog warned consumers that bitcoin and other cryptocurrencies have “no intrinsic value”, but added that these coins fall outside its regulatory powers.

The Financial Conduct Authority (FCA) will not regulate digital currencies or their exchanges as they fall outside its “regulatory perimeter”, the body said as it published its latest guidance on cryptocurrencies yesterday.

FCA executive director of strategy and competition Christopher Woolard said: “This is a small, complex and evolving market covering a broad range of activities.”

But the watchdog added: “Consumers should be cautious when investing in such cryptoassets and should ensure they understand and can bear the risks involved with assets that have no intrinsic value.”  

 

Libra backlash

The regulator added that unregulated digital currencies such as bitcoin, ether and XRP, are not covered by the Financial Services Compensation Scheme and consumers do not have the right to appeal to the Financial Ombudsman Service.

The treatment of digital currencies by regulators is in the spotlight after Facebook unveiled plans for its Libra coin last month, which led to a backlash from politicians and central bankers around the world concerning privacy, money laundering and financial stability.

Digital currencies are prone to wild price swings, which make them attractive to some retail investors, while critics call the unstable.

Matt Hopkins, head of fintech at the accountancy firm BDO, said: “It’s very understandable that the FCA does not want to ‘legitimise’ some of the crypto exchanges by regulating them – that risks giving false assurance to retail investors about how secure the products are.” 

 

Digital scandal

However, Hopkins added that the watchdog might be forced into a u-turn should a large number of consumers be caught up in a major digital currency scandal.

Hopkins said: “There is quite a fine line for the FCA to tread in protecting consumers while not stifling innovation, but the direction of travel is towards regulation. The FCA should make sure it is ahead of the curve, and not forced to regulate exchanges by a scandal later.”

Earlier this month, the FCA proposed a ban on financial instruments, such as derivatives and exchange-traded notes linked to digital currencies to retail customers, saying they “cannot reliably assess the value and risks” of these products.