The perils of unregulated cryptocurrencies
Britain’s markets watchdog said that bitcoin and other cryptocurrencies have no intrinsic value and offer consumers few protections, but added that such coins fall outside the scope of its powers. The Financial Conduct Authority said crypto markets were highly dysfunctional, with the onus on consumers to understand the risks associated with investing in unregulated assets. “A combination of market immaturity, volatility, and a lack of credible information or oversight raises concerns about market integrity, manipulation and insider dealing within cryptoasset markets,” the FCA said in a statement.
Despite those flaws, the FCA said existing rules did not apply to bitcoin and other tokens such as second-biggest coin ethereum, or to firms like exchanges and trading platforms.
The watchdog was laying out which aspects of the nascent crypto industry it regulates — a milestone in Britain’s regulation of a sector that still forms a tiny part of the broader financial system but which has attracted strong retail investor following.
“We have some concerns around some of the harms that consumers can be exposed to,” Nick Cook, FCA director of innovation, said, adding that investment by British consumers in crypto was still fairly low.
The FCA said its guidance will inform Britain’s finance ministry as it looks at whether new laws are needed for cryptocurrencies.
The finance ministry said in an emailed comment that the guidance was welcome and that it was planning to consult on unregulated cryptocurrencies later this year.
Retail investors across the world have been drawn to cryptocurrencies, highly volatile assets that unlike fiat money or other assets usually lack guarantees, because of their potential for quick gains.
Other proponents say digital coins could transform payments and how companies raise capital, though such examples are rare.
The treatment of cryptocurrencies by regulators is in focus after Facebook unveiled plans for its Libra coin, sparking a backlash by politicians and regulators across the globe.
G7 finance ministers and central bankers said last month that Libra and other digital currencies raise serious concerns and must be regulated as tightly as possible to ensure they do not upset the world’s financial system.
While the FCA did not mention Libra in its guidance, it said that some “stablecoins” — a form of cryptocurrency, like Libra, backed by assets such as fiat currencies — could fall under its rules in certain circumstances.
The FCA could not say how Libra would be treated because its structure, design and operating model were still to be determined, Cook said.