Use technology to fight money laundering. That’s the message from the Financial Conduct Authority’s Matthew Long.
“I still see £24 billion of money laundering in crypto transactions, and that’s a low estimate,” Long, who is the director of payments and digital assets at the UK markets watchdog, told a conference in London on Wednesday.
Long said he was eager to see crypto firms “using innovation to do that.”
“Let’s get a clean market first, and then let’s talk about things like using stablecoins for payments,” he said.
He was responding to a question on how the FCA can find a balance between encouraging innovation and creating rules that protect investors and provide for safer markets.
That could be interpreted as a barbed question to ask the FCA.
Conservative politicians, eager to position themselves as the business-friendly party ahead of a general election this year, have pushed the line that the FCA’s heavy-handed regulation is preventing crypto businesses from flourishing in the UK.
Economic secretary to the Treasury Bim Afolami said last week that the regulator risks “undermining” the entrepreneurial spirit that drives crypto ventures.
The FCA approved just four crypto registrants in 2023, as DL News reported, citing aspiration registrants’ poor anti-money-laundering provisions.
The watchdog has also cracked down on crypto ATMs, and its marketing regime caused participants including Binance and PayPal to suspend operations in the country.
Tech-forward regulator
The FCA, however, has insisted for years that it is a tech-forward regulator, pointing to initiatives like its regulatory sandbox — where fintechs can test ideas for products and services — as proof.
Long also cited the FCA’s new Digital Securities Sandbox, or DSS, which allows institutional market participants to experiment with tokenising financial securities like stocks and bonds.
The FCA launched the sandbox in January in conjunction with the Bank of England and started a consultation in April aimed at refining how it will work.
Long said the DSS is one example of how the regulator is evolving its focus beyond retail consumer protection to institutional markets.
“We’ve gone from a retail position to a wholesale position, so from money-laundering regulations and financial promotions we move on to the next stage — working pretty hard on stablecoins as we go forward,” he said.
The UK government consulted on regulation for crypto last year. In a staged approach to rolling out those rules, the FCA is now working on stablecoin legislation.
Afolami has said these rules will be ready by midyear.
“For me, it’s relatively straightforward [to use] innovation to mitigate the risks that we keep talking about, getting to a position where we’re comfortable with the market we have, and using tools like the Digital Securities Sandbox” to work with market participants, Long said.
Joanna Wright is a regulation correspondent for DL News. Reach out to her at joanna@dlnews.com.