Britain’s markets watchdog said on Wednesday 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, told Reuters, 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.
Other types of cryptocurrencies, such as security tokens — coins that provide rights and obligations such as shares or units in funds — were subject to rules, the FCA said. As such, firms issuing them would need authorisation.
CryptoUK, an industry body, called for further clarity.
“Britain’s cryptoasset sector is a key part of the UK fintech industry but needs regulatory certainty to reach its full potential,” chair Iqbal Gandham said in a statement.
Patchwork of Rules
Currently cryptocurrencies are subject to a patchwork of rules that vary from country to country.
Regulators in Britain, the European Union and the United States have looked at how they can apply existing securities, anti-money laundering and consumer protection rules before considering new regulation.
Others, such as China, have banned cryptocurrencies outright. An Indian government panel last week recommended a similar measure.
A handful of smaller countries, from Belarus to Bahrain, have come up with specific laws for digital currencies. Their efforts could help shape the development of the global market and the growth of industry players, from exchange platforms to brokers.
The FCA said it would work closely with other national and international regulators to coordinate approaches.
For now, said Bradley Rice, a lawyer at law firm Ashurst, there was little it could do within its existing powers.
“The FCA’s hands are tied. If the UK wants to bring more crypto assets into the regulatory net, the law has to be changed, and that is in the Treasury’s gift,” he said, referring to Britain’s finance ministry.
(Reporting by Huw Jones and Tom Wilson; editing by Catherine Evans)
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