As exchanges dealing in digital tokens and other crypto assets can be used to launder the proceeds of crime, Britain’s Financial Conduct Authority (FCA) must insist businesses with a UK presence meet necessary standards, chairman Charles Randell told an industry audience.
Though the financial regulator has a limited role in registering UK-based crypto asset exchanges for anti-money laundering purposes, “we must contribute to the global effort to address financial crime”. Demanding high standards from operators in the UK is part of that fight, he said at the Cambridge International Symposium on Economic Crime.
“While some of the business which have applied to us have shown evidence of adequate systems and controls, many others fell well short of acceptable standards and many have withdrawn their applications as we have scrutinized them.
“The state of those firms ignoring the requirement to register with us or which have moved offshore to avoid registration could be even worse,” he said.
The FCA has published a list of unregistered crypto exchanges it suspects are operating in Britain to help consumers avoid using them.
“Banks and other authorised firms should be very wary of transactions involving unregulated crypto exchanges wherever they are based, and should use the list of suspect UK businesses to identify customers and transactions which may be money laundering,” he added.
On the question of the FCA overseeing the digital token market, Randell said: “One thing is clear: because of the decentralised way that these speculative tokens are created, any effective system of regulation would require a business seeking registration or authorisation with the FCA to bring itself firmly within our reach, with people and resources that we could access in order to supervise and enforce our requirements.
“We are not going to award FCA registration or authorization to businesses which won’t explain basic issues, such as who is responsible for key functions or how they are organised. That would be token regulation in the worst sense.
“Action against businesses which choose not to bring themselves within the reach of an effective national regulator needs to be international, with regulators across the world working together to limit the harm.”
But there are also benefits to be reaped from the new form of trading, he said.
“An effective system of regulation of digital tokens has to allow the more promising use cases for the innovative technology that underlies the tokens to flourish – especially the potential to make payments and financial infrastructures more efficient and accessible.
“It’s essential to find the right balance between appropriate regulation to protect consumers and markets and encouraging useful new ideas in this space.”
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September 8, 2021, Published on GRC
