Category Archives: Financial Conduct Authority

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UK’s FCA Discusses Derivatives Ban Despite 3 Million Crypto Users

The UK’s financial regulator, the Financial Conduct Authority (FCA), has cited “integrity issues” as a reason for considering placing a ban on cryptocurrency derivatives in an event in London of 20 November.

The comments were made by the FCA’s executive director of strategy and competition Christopher Woolard, addressing invited guests at the Regulation of Cryptocurrencies event in the capital.

The UK government’s Cryptoassets Task Force met for the first time on 21 May as part of the country’s plan to regulate the cryptocurrency and blockchain space and since then has been reporting back its findings regarding the regulation of cryptocurrency in the UK.

One of the functions of the task force is to examine the risks of blockchain technology and mitigate these while examining the benefits of ledger technology in financial services. The Cryptoassets Task Force comprises representatives from the UK Treasury and the Financial Conduct Authority (FCA).

The idea of a ban is a recent development only surfacing last month for the first time, among criticism that the UK had been slow in addressing the growth of cryptocurrency adoption in the UK without adequate safeguards and guiding legislation for the industry.

The focus, according to Woolard, would be on what the FCA has called “cryptocurrency contracts-for-difference (CFDs)” which would be likely to cover “options, futures and transferable securities”. He mentioned in his speech that UK’s regulators were particularly concerned “…that retail consumers are being sold complex, volatile and often leveraged derivatives products based on exchange tokens with underlying market integrity issues”.

In their findings, the task force had categorized CFD’s into three types, Woolard noted, constituting “exchange tokens” such as Bitcoin (BTC), security tokens and utility tokens. He also noted that in case of unauthorized use of tokens, the FCA could initiate what he termed as “one of the most comprehensive responses globally to the use of crypto assets for illicit activities”.

Despite the FCA’s comments regarding the future of derivatives at the event, many surveys continue to illustrate Britons’ growing awareness and use of cryptocurrencies with 15.8 million UK residents owning or considering Bitcoin. A July study revealed up to 3 million people have invested in Bitcoin in the country through online trading platforms.

The technology behind cryptocurrencies is burgeoning in the UK. The country is known as a driving force in blockchain research and the spread of solutions is being utilized by numerous companies, as the country becomes one of the world’s most significant and dynamic fintech hubs.

 

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Business Authority Slams UK’s Proposed Crypto Regulations

The Financial Conduct Authority (FCA), the government body responsible for regulation of financial services companies in The United Kingdom, has come under fire from the UK business Authority in a new report.

The director of the British Business Federation Authority (BBFA), Patrick Curry, has suggested that MPs’ plans to force the FCA to crack down on illegal activity is unnecessarily punitive and could ultimately damage the UK’s standing as a fintech hub. Curry maintains that it is still far too early to take such an approach given that blockchain is making important inroads towards improving business and the way the way that companies operate:

“It is a very blunt instrument approach and I haven’t seen this in other countries. The use of this technology is still a voyage of discovery and these technologies are being refined for different types of use. My concern is the law of unintended consequences.”

The report’s co-authors, the BBFA, law firm Baker Botts, Novum Insights and crypto exchange TodayQ, argue that “bad regulation is worse than no regulation at all”.

Neil Foster, the corporate technology partner at Baker Botts, said that proposed legislation is too all-embracing and needs far more sophistication, suggesting that crypto assets need their own discrete set of legislative guidelines. He argued:

“With sophisticated classification, we should work out what could be a regulated activity. If you crowbar everything into the Regulated Activities Order you are making everything into an investment bank.”

A recent report published by the United Kingdom Treasury Committee has called for the “Wild West” crypto-asset market to be regulated. Summarily, the report acknowledged that cryptocurrencies and “most” initial coin offerings (ICOs) did not fall within the remit of the FCA who, in August, established an international regulatory network for financial innovations.

The UK’s daily broadsheet, the Telegraph, has reported that the Conservative government is still dragging its heels regarding the regulation of cryptocurrency, despite London becoming one of Europe’s main crypto hubs and the home to some of the industries biggest players.

 

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Winklevoss Twins and Gemini Glimpse Crypto Horizon in UK

Gemini and the Winklevoss twins are looking ahead to the UK as their next lucrative cryptocurrency landscape.

The entrepreneurial crypto brothers, having recently been knocked back by the SEC after their own ETF submission was turned down, have at least have received some recent success in getting a rubber stamp from the NY regulators for the company’s new stablecoin. Two firms, Gemini Trust Company, and the Paxos Trust Company are the first stablecoin providers to receive the go-ahead to list on exchanges in New York State.

Now it appears that the brothers are “crossing the pond” with their latest venture. Those close to the company have reported that Gemini has already taken the step to hire consultants to advise on an approach to move into the UK. London is currently the European financial epicenter, although many companies are now awaiting the final outcome of Brexit talks, and some have even already moved from London to Germany and France in anticipation of a negative result in which no deal between the UK and Brussels is reached.

This has clearly done little to dissuade Gemini as it plans to file an application with the UK’s equivalent of the SEC, the Financial Conduct Authority (FCA), according to the Financial Times.

If a move does materialize, Gemini’s made competitor will become San Francisco-based exchange giant Coinbase who are now well established in the UK as the main provider of crypto-related services to UK residents. Coinbase has recently expanded the offerings on its UK platform, enabling easier withdrawals from UK Coinbase sterling accounts to English banks and forming a partnership with major English bank, Barclays, to simplify its platform for users.

The UK market is still being monitored by the FCA but there have been recent calls for tighter regulatory measures called for by MPs. The FCA has recently asserted that it would not “rule out roles for crypto-assets themselves”, an approach far from calling for a ban or restriction on trading operations. However, the situation is ongoing without any real decisions taken as yet by the Crypto-Assets Task Force set up earlier this year in May.

The most recent noises out of Westminster concerning cryptocurrencies is that MPs want the FCA to look at digital currencies “as a matter of urgency”, suggesting that no new asset class is structured around the technology but that EU AML laws are enforced along with KYC checks.

The Gemini move may offer challenges in a vibrant and lucrative UK market, but the benefits may be worth the risks. The UK experiment has certainly worked for Coinbase who now plan to move into Ireland. Gemini is currently 61st in global rankings.

 

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UK Financial Regulator Wants Balanced Crypto Approach

The chief executive of the UK’s Financial Conduct Authority (FCA) addressed the issue of cryptocurrencies at a speech in London on Tuesday, a subject with which he said requires a balanced approach.

Speaking at the 2018 regulator’s Annual Public Meeting, Andrew Bailey initially brought up crypto assets as one of four operational risks significant in the regulators’ current work. While he said that the FCA was ”keen to see the potential of their underlying technology,” he recognized that there are also evident risks, citing a lack of education from consumers who do not understand the price volatility of their investments.

Bailey added that the FCA would not ”rule out roles for cryptoassets themselves”, an approach far from calling for a ban or restriction on trading operations. Combined with his statement that ”the FCA is firmly a supporter of innovation,” UK investors can rest assured that the FCA is not looking to impose any radical changes to the current regulations any time soon.

The section of Bailey’s speech referring to cryptocurrency came to an end with his assurance that the regulatory body was working closely with the Treasury and Bank of England to address any related issues and find ”appropriate responses”, a reference to the Cryptoassets Task Force set up earlier this year in May.

The UK task force held its first meeting on 21 May to discuss the future of blockchain and cryptocurrencies, and to establish ways to mitigate any risks that the growing industry might bring.

Alongside the FCO, the task force includes several senior government officials, the Bank of England and HM Treasury, although they have said they welcome the opinions and input of trade bodies, consumer groups, and investors in order to gain a broader perspective.

The UK has already begun establishing itself as a leading country in the blockchain industry; the outcome of these discussions are crucial in deciding whether this can remain the case in the future.

 

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New EU ICO Rules May Fall Under Crowdfunding Umbrella

The European Parliament in Brussels has taken a further step towards clarifying rules for ICOs within the nations of the European Community.

The all-party group met yesterday to examine proposals for the launching of ICOs although as yet no formal statements of intent have been made regarding the outcome of the meeting. Nicolas Brien of France Digitale did urge for haste, however, arguing that “the market wants legitimization… from every jurisdiction. In the UK it’s particularly bad, none of the banks will bank you if you have crypto”.

Two weeks ago, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) published a draft report that offers insights into new regulatory frameworks for crowdfunding. ICOs received a notable mention in the report stating, “It takes a much-needed step towards imposing standards and protections in place for what is an excellent funding stream for tech start.”

Brien went on to explain:

“Having the certainty, but also having that legitimization, I actually welcome having a European-wide proposal because it gives people the certainty to know. I think we need to be clear whether this is a utility token or a transferable security, or how the regulator regime looks at that, but I think this can be done because an ICO is another form of crowdfunding. It’s different, but it is a form of crowdfunding.”

As is so often the case at such meeting many regulators got on to discussing the need to prevent potential fraud and scams requiring a higher level of scrutiny than is currently the case. Laura Royle of the Financial Conduct Authority (FCA) echoed those thoughts at the meeting commenting:

“…we certainly do see a huge potential benefit in this space for firms to raise capital from a broad array of investors and without the cost of an intermediary, but there are risks associated [such as] the potential for fraud, with a lack of transparency and the volatility.”

There are current EU estimates that as many as 81% of ICOs could result in fraud. However, if new regulations result in a higher standard than is currently evident, then this may set the example for productive projects in the future within the EU. How this will apply to ICOs within the UK is still uncertain, given the country’s departure from the EU in March of 2019.

 

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Crypto to Come Under Microscope at Vienna EU Talks

The EU is ready for its next round of talks with the 28 member states ready to discuss digital assets and whether further legislation is needed.

The next round is scheduled to be held in the Austrian capital Vienna on 7 September and is said to include certain issues surrounding cryptocurrencies such as money laundering, tax evasion and terrorist financing, all subjects which have been of concern to EU legislators over recent years.

It’s thought that the focus on money laundering, tax evasion and terrorist financing planned for Vienna has been motivated in part by concerns that EU laws don’t provide enough protection to investors, particularly in light of Asian moves to tighten regulation following hacking incidents this year. Also, the fact that unregulated exchanges fall outside of global financial regulations has caused some extra concern.

It should be acknowledged that while these concerns continue to dominate EU discussions, it has been noted by the both the European Commission and the International Monetary Fund (IMF) that both digital currencies and blockchain technology can bring great benefits to capital markets and commerce in general.

Regulators in Europe are also keen on harnessing the new technologies unleashed by digital currencies, according to the updated document. Initial coin offerings “have established an effective and efficient way to raise capital”, it said, adding that this development could also help integrate capital markets in the bloc.

French finance minister Bruno Le Maire recently described cryptocurrency as a “revolution”. Income tax on crypto has been axed by the French government and former French finance minister Christine Lagarde, now IMF head, described future international digital currency regulation as “inevitable”.

Lagarde said that not only could Bitcoin enable fast and inexpensive transactions but that the underlying technology behind cryptocurrencies, blockchain, could make financial markets safer.

Other states have made positive comments with the German federal government stating that cryptocurrencies don’t pose any threat to financial stability and the UK’s Financial Conduct Authority (FCA) announcing the launch of a collaborative entity, the Global Financial Innovation Network (GFIN).

An EU document obtained by Bloomberg says that ICOs “have established an effective and efficient way to raise capital”. The document reportedly also states that ICOs could help integrate capital markets in the EU.

 

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Wirex Next to Get FCA’s e-Money License

The UK’s financial regulator, the Financial Conduct Authority (FCA), has just awarded its third e-money license to date.

This time, the beneficiary was crypto company Wirex, who produces prepaid debit cards for converting crypto to fiat, hot on the heels of Coinbase who received its license in March.

We are more than proud to announce that Wirex Limited is only the third #crypto-friendly company in the world to have been granted an FCA e-money licence ✅✅
What does this mean for us? And more importantly, for you? https://t.co/NC2VivcG93

— Wirex (@wirexapp) August 23, 2018

The Coinbase thumbs up from the FCA, unlike the Wirex license, doesn’t relate to cryptocurrency dealings. This enables the crypto company’s access to the UK’s faster payment system for supporting pound sterling, although this is still not available for most users who still can only transfer funds to UK Banks from Coinbase using euros, thus incurring an extra transaction fee.

However, many potential clients are dissuaded from signing up to platforms such as Coinbase due to lengthy verification processes, sometimes waiting many weeks before a user’s bank can be verified and linked for payments.

The FCA’s UK fintech sandbox was established along with the licensing program earlier in the year and then updated later to include two British crypto companies, Globacap and BlockEx, who are currently developing their blockchain applications for financial services.

Although the watchdog is proactive in giving new UK crypto companies opportunities to develop and operate within the UK and globally, with 40$ of latest sandbox companies being blockchain-related, warnings are still being issued to the public regarding crypto scams.

Also, the regulator has accepted a small number of crypto-assets related firms as the FCA suggested that it is “keen to explore whether, in a controlled environment, consumer benefits can be delivered while effectively managing the associated risks”.

A warning was issued last week by the FCA regarding fraudsters, many of which have targeted known figures such as Amstrad Boss and Apprentice host Sir Allen Sugar and other UK media personalities.

Efforts made by the British financial watchdog and its collaborations with government branches indicate that the United Kingdom is to become a significant player in the global movement to create industry regulation frameworks and business innovations.

 

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