The UK financial watchdog has taken its first steps towards regulating cryptocurrencies like bitcoin, as global bodies begin to answer the call for greater oversight of the growing but volatile market.
On January 23, the Financial Conduct Authority launched a comprehensive consultation on how regulation should be applied to everything from cryptoassets and the exchanges on which they trade, to payment companies, wallet providers and the brokers seeking to benefit from the market’s growth.
The consultation follows pressure from UK politicians, who say the time has come to regulate cryptoassets and the technologies that underpin them. In September, the influential Treasury Committee described the market as the “Wild West” and called for more consumer protection.
In early 2018, the FCA was made part of the Cryptoasset Taskforce to investigate the risks and rewards of digital money, after Bank of England governor Mark Carney said cryptocurrencies were failing.
The regulator now wants to give companies active in the crypto markets “greater clarity” on applying for regulatory authorisation if they need to. It is also seeking to assess whether or not the assets themselves are financial instruments as defined by the European Union’s Markets in Financial Instruments Directive II rule book.
The FCA is responsible for enforcing Mifid II in the UK.
Christopher Woolard, executive director of strategy and competition at the FCA, said: “This is a small but growing market and we want both industry and consumers to be clear what is regulated, and what isn’t. This is vital if consumers are to know what protections they’ll benefit from and in ensuring we have a market functioning as it should.”
An increasing number of sophisticated financial institutions — including banks, fund managers and exchanges — have begun to develop an infrastructure around trading cryptocurrencies, helping the market to mature.
But UK crypto exchanges still only account for around 1% of all cryptocurrencies traded globally each day, with a volume of roughly $200m, according to the FCA.
The FCA consultation ends on April 5.
The regulator also plans to discuss with the industry the possible banning of derivatives linked to cryptocurrencies. A number of the world’s leading exchange groups host the trading of bitcoin futures, which allow investors to bet on future price rises and falls.
The price of bitcoin, the world’s leading cryptocurrency, has proved extremely volatile in the past 18 months.
Bitcoin is currently valued at around $3,500, having hit a high of nearly $20,000 in late 2017.
Source: Financial News
By Samuel Agini