The UK’s Financial Conduct Authority (FCA) has defended its rigorous approach to regulating the crypto industry, countering claims that its stringent standards are stifling innovation. In an October 21 statement, Val Smith, head of payments and digital assets at the FCA, outlined the agency’s reasoning behind its tough stance, insisting that strong regulations are vital for long-term success.
Balancing Innovation and Protection
Smith addressed concerns that the FCA’s high bar for crypto firm registrations could hinder the UK’s ambition to become a global financial leader. Critics argue that the current regulatory framework may deter innovation, but Smith countered, stating, “Relaxing our standards and creating a race to the bottom won’t protect people or markets.”
Smith emphasized that innovations built on “unsafe, unregulated and untrusted foundations” are likely to fail, adding that the FCA’s primary goal is to protect consumers and prevent risks like terrorism financing, organized crime, and human trafficking.
Thorough Vetting Process
Despite criticism, Smith noted that no application is rejected “out of hand.” Instead, the FCA evaluates firms against strict criteria, including their controls against financial crime, their operational environments, and their customer bases. The rigorous process aims to prevent bad actors from entering the financial system, ensuring that only trustworthy firms are granted approval.
Pushback from the Crypto Community
The FCA’s stance has met resistance from the local crypto community. CryptoUK, a trade association for the UK crypto industry, has called the registration process lengthy and resource-intensive. As of September, only four of 35 crypto business registrations have been approved in the past year. Some businesses are reluctant to apply due to the high demands in terms of resources, personnel, and finances.
Regulatory Developments and Support
Despite the challenges, the FCA remains committed to working with crypto firms. It offers pre-application meetings and practical support to help companies meet the necessary standards. The FCA and the Bank of England also launched a sandbox initiative on October 1 to explore how digital ledger technology can be used in the settlement and maintenance of financial securities, signaling the UK’s ongoing commitment to the digital finance sector.
