- The FCA faced political pressure to rubber stamp dubious operators.
- A former FCA chair questioned how best to tackle “agency capture.”
- The UK’s crypto hub ambitions are well underway.
The UK has been working to achieve its ambitious plan of becoming a global crypto hub, setting up several pro-crypto initiatives to attract investments to the burgeoning sector.
However, as detailed by the former Financial Conduct Authority (FCA) chair Charles Randell, this eager political push to get ahead of rival jurisdictions has raised ethical considerations regarding bowing down to political pressure.
FCA Under Political Pressure
Speaking to attendees at the Bank of England’s Prudential Regulation Authority conference this week, the former FCA chair Charles Randell revealed that the financial watchdog was put under intense political pressure to greenlight crypto firms to operate in the UK market, even when the agency’s due diligence had raised red flags.
“In the context of crypto, in my experience as FCA chair, was that there was a lot of political pressure to welcome firms, some of which are now under criminal investigation by the US Department of Justice. And all the evidence that we had at the FCA was that wasn’t a very good idea,” Randell commented.
Although Randell did not disclose which firms had triggered the FCA’s concerns, it was noted that the agency had confirmed that FTX was not authorized to operate in the UK in the wake of its collapse and that Binance opted to cancel its UK registration application in May.
Randell’s disclosure highlighted an unsettling breach of political boundaries against the FCA as an independent regulator. Commenting on this situation, the former chair questioned how regulators can best protect themselves against the undue influence of political pressure and even pressure from industry participants.
“How do you embed the safeguards against agency capture – either by the industry or selected industry interests, or actually by political interest?” questioned Randell.
Randell’s remarks serve as a timely reminder that financial regulators are tasked with protecting investors’ interests above all else, even if that means inflicting a short-term dent in the UK’s ambitions for the sector.
The UK’s Crypto Hub Ambitions
In April 2022, UK Prime Minister Rishi Sunak announced plans to legislate stablecoins as part of the government’s crypto hub ambitions. Accompanying the tweet, Sunak linked a Treasury post detailing how the UK intends to achieve this goal. This included:
- Recognizing stablecoins as a valid form of payment.
- Implementing pro-crypto legislation.
- The formation of a regulatory sandbox to enable firms to innovate and experiment.
- Overhauling the tax system to encourage the development of crypto markets.
- Setting up a Cryptoasset Engagement Group to facilitate direct contact lines between government and industry.
More than a year on, progress has been mixed. Although King Charles gave his royal ascent on the Financial Services and Markets Act 2023 in June, legalizing cryptocurrency trading as a regulated financial activity, other objectives remain incomplete, including the Treasury considering feedback on the regulatory sandbox.
On the Flipside
- Binance has withdrawn from several European countries recently, including the Netherlands and Cyprus.
- US regulators under the current political regime, such as the SEC, have adopted an opposing stance to that of the FCA and UK, which the crypto industry has deemed hostile.
Why This Matters
Randell’s revelations underscore how inappropriate political interference can undermine the authority of regulatory bodies. This situation highlights that investor protections and political interests, however well-intentioned, don’t always align.
Learn about the FCA’s stance on social media crypto marketing here:
UK Goes After Crypto ‘Finfluencers:’ FCA Cracks Down on Promotions
Find out more on the Hong Kong government’s reaction to crypto exchange fraud allegations here:
Hong Kong Slams Brakes on Crypto Following JPEX Scandal