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The FCA of the United Kingdom argues that its strict regulations on crypto are essential to protect consumers and the financial system, responding to criticisms that accuse them of stifling innovation and hindering the country’s global competitiveness.

Let’s see all the details in this article. 

Innovation and security: the delicate balance of the new FCA crypto regulations in the UK 

As anticipated, the Financial Conduct Authority (FCA), the financial supervisory authority of the United Kingdom, has recently defended its strict approach to the regulation of the crypto sector.

In a context where the cryptocurrency market continues to expand and attract investors, the FCA finds itself balancing consumer protection with the need to promote technological innovation. 

However, his rigorous approach has been the subject of criticism. Specifically, some argue that these high standards are limiting the United Kingdom’s ability to become a global leader in the bull and bear financial sector of cryptocurrencies.

In a post published on October 21, 2024, on the FCA website, Val Smith, head of payments and digital assets at the authorizations division, emphasized the importance of maintaining high standards.

This, according to him, in order to protect consumers and preserve the integrity of financial markets. Smith responded to the accusations that the FCA regulations would be “too harsh” and stifle innovation. 

Specifically, he stated that such measures are necessary to prevent the cryptocurrency sector from developing on “unsafe, unregulated, and unreliable foundations”.

According to Smith, loosening regulatory standards would not lead to a safer market, but on the contrary, it could put consumers at risk and businesses. 

“Loosening our standards and creating a race to the bear will not ensure that people and our markets are protected or even function well.”

The FCA emphasizes how a rigorous approach can therefore ensure a solid and sustainable foundation for the development of the bull and bear cryptocurrency sector.

The necessity of rigorous regulation

One of the key points of the FCA’s defense is related to the risks that an unregulated cryptocurrency market could entail. 

Smith explained that the current regulation aims to prevent the flow of illicit money and to combat criminal activities such as the financing of terrorism, organized crime, and human trafficking. 

“Allowing illicit money to flow freely can destroy lives,” he stated, highlighting the real risks of a financial system that is not sufficiently monitored.

The FCA is aware that the registration process for crypto companies is perceived as long and complex. However, Smith emphasized that no registration application is rejected “a priori”. 

Each company is evaluated based on a set of criteria that include its ability to implement controls against financial crime and the quality of its operating systems. 

This detailed approach, according to the FCA, is necessary to prevent “malicious actors” from entering the financial system, with potentially devastating consequences.

Despite the defense of the FCA, the community of cryptocurrencies has expressed growing concerns regarding regulation.

On September 12, 2024, CryptoUK, a self-regulatory trade association for the cryptocurrency industry, stated that many of its members have reported some reluctance to register with the FCA. 

This is due to the complexity and length of the process. According to CryptoUK, out of 35 registration applications submitted over the past year, only four have been approved by the UK regulators.

The association also emphasized that the registration process requires substantial resources, in terms of time, personnel, and financial resources, representing a significant obstacle for many crypto companies. 

These difficulties, according to some, could discourage companies from seeking registration in the United Kingdom, limiting the growth of the sector within the country.

The initiatives to facilitate the process

Despite the challenges, the FCA has reiterated its commitment to working with crypto companies, seeking to facilitate the process of registration through pre-application meetings and practical support. 

The objective of the authority is to ensure that companies can comply with the required standards, without however compromising the security and integrity of the financial system.

An example of the FCA’s efforts in this regard is the sandbox initiative launched jointly with the Bank of England on October 1, 2024.

This sandbox allows companies to test new technologies, such as digital ledger technology, in a controlled environment. 

Exploring consequently how these innovations can be used to improve the processes of registration and maintenance of financial securities.