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In the case of some cryptocurrency tokens, the chair of the United Kingdom’s Financial Conduct Authority has warned that over-extending authorities’ authority could backfire.
Regulators must strengthen consumer protections for crypto token investors while also keeping in mind that excess could backfire, according to the chair of the United Kingdom’s Financial Conduct Authority (FCA).
In a new speech written for the Cambridge International Symposium on Economic Crime, Charles Randell, chair of the FCA and Payments Systems Regulator, said that there is currently a real problem with consumers who delve into the crypto sphere without due awareness of the risks.
He singled out the role of influencers and paid-for advertising, in particular, noting that Kim Kardashian’s recent Instagram promotion of EthereumMax (EMAX), a brand-new token issued by “unknown developers,” “may have been the financial promotion with the single biggest audience reach in history.”
While Randell deferred judgement on whether EthereumMax is fraudulent in and of itself, he hinted that the broad reach of such a campaign and its potential to deceive uninformed consumers should give regulators pause.
Add to this the dynamics of retail investor enthusiasm, FOMO, and the development of pump-and-dump crypto-related scams, and Randell claims that many consumers are naive to the financial risks they are exposing themselves to by relying on influencer endorsements and sophisticated online token campaigns.
To demonstrate his point, Randell stated that over 2.3 million U.K. citizens presently own cryptocurrency, with 14 percent having “worryingly” purchased it on credit. Furthermore, according to the FCA’s data, 12 percent of crypto holders — around 250,000 Britons — wrongly assume they will be covered by the FCA or the UK’s Financial Services Compensation Scheme if something goes wrong.
Despite this, Randell is hesitant of overreacting to the new asset class, pointing that U.K. customers are free to indulge in other unregulated speculative activities ranging from gold and foreign currencies to Pokemon cards “no shortage of consumer harm in many of those markets”:
“So why should we regulate purely speculative digital tokens? And if we do regulate these tokens, will this lead people to think that they are bona fide investments? That is, will the involvement of the FCA give them a ’halo effect’ that raises unrealistic expectations of consumer protection?”
While the FCA presently controls cryptocurrency exchanges and prohibits the selling of crypto derivatives to retail consumers, Randell argued that the FCA’s future actions should begin with a limited scope of two interventions focused on stablecoins and security tokens.
Both, he believes, have the potential to provide “encouraging helpful new ideas” for cross-border payments, financial infrastructure, and financial inclusion, and should not be hampered by excessive red tape. Instead, he advocated for a more moderate approach, consistent with existing FCA-regulated entity rules, to ensure that token issuers and blockchain firms are solvent and transparent. He also pointed to the success of the FCA’s regulatory sandbox and its role in enabling developers to test their ideas in a supportive and insulated environment.
Beyond stablecoins and security tokens, Randell argued that the FCA should go further in targeting misleading crypto asset promotions, which it has already been studying for over a year. In mid-July 2021, the FCA created an 11-million-British-pound (~$15 million) fund to run an online marketing campaign warning Britons, especially 18–30-year-olds, about the risks associated with many crypto investments.