The FCA needs more experience with crypto in order to understand the asset class fully, an expert has warned.
Mark Aruliah, senior policy adviser at blockchain analysis firm Elliptic, who spent a number of years as a technical specialist at the FCA, said he doesn’t see any strong advantages in being in the UK as a crypto firm.
“I’m not saying the UK regulator is in a positive or negative position, I think the jury is out for me,” he said.
Speaking at the recent International Financial Services Forum, Aruliah said he was a supporter of strong regulation and investor protection, but it has to include common sense and pragmatism.
“[There needs to be] more experience within the regulator itself to understand what crypto is,” he said.
He added that the regulation of crypto is different to tradition finance, and on top of that there’s tensions between the legislator, politicians looking at crypto as a benefit to jobs and economic growth, and the natural tendency of the FCA to regulate to a high standard.
The main problem is a lack of dialogue between regulators and crypto firms, he said, which happens in traditional securities markets in the UK but not in crypto.
“That’s the bit that has to change if you want to be conducive to a vibrant sector,” he said.
While cryptocurrencies aren't regulated as an investment, the asset class was brought under money laundering regulations in 2020 which means certain cryptoasset firms must be registered with the FCA before conducting business.
This pushed the FCA's fees up by £8mn last year, which the regulator said would go towards the costs of developing IT systems and recruiting extra staff for the project.
Pressure has been growing on the FCA to tighten regulation of crypto firms, amid worsening levels of scams and fraud.
The number cryptoasset scam reports received by the FCA more than doubled to 6,372 in 2021.
In October, the Bank of England called for new regulations around cryptocurrencies as a “matter of urgency”, warning of the risks posed by the digital asset to retail investors.
A few months earlier, FTAdviser reported that the regulator had warned consumers against holding cryptoassets after it reported a rise in ownership of the assets.