The Financial Conduct Authority (FCA) has announced that it is looking into the proposed regulation of the cryptocurrency industry and is carrying out a consultation until 5th April of this year.
While cryptocurrencies have been around for almost a decade, they grew to new heights when the price of bitcoin reached its peak of $20,000 in December 2017. The sudden growth led to a wave of interest and investment from around the world. However, the City Regulator is now looking into potential regulation for the industry to reduce risk for those that use them.
Cryptocurrencies including bitcoin, ethereum, and ripple are purchased and sold through electronic wallets on a distributed ledger known as a blockchain. The trading of currencies is not currently regulated and means that it attracts dark web activity and commonly the buying and selling of illegal products.
However, as the products become more mainstream for buying goods and services daily, customers are potentially exposed to market volatility and lack of protection. For instance, use of cryptocurrencies is not currently backed by the financial services compensation scheme. So any individual who loses money from their eWallet due to theft or hacking has no way of reporting this or holding their money.
The new proposed regulation can create barriers to entry and increased costs for trading platforms, news sites and price comparisons which have sprouted up in the last year – something that will put tech PR companies into a frenzy.
The FCA report assessed the risks and potential benefits of cryptoassets, identifying potential harms, as well as setting out a plan for regulation in the UK and detailing the different activities that should be assessed for regulation.
Cryptoassets could also be set for an EU-wide regulatory approach, following the recommendations of pan-European regulator European Securities and Markets Authority (ESMA).
The FCA said: "Cryptoassets pose a range of substantial risks to consumers that stem from consumers purchasing unsuitable products without having access to adequate information.
"This can include fraudulent activity, as well as the immaturity or failings of market infrastructure and services."
It added there is "limited evidence of the current generation of cryptoassets delivering benefits" but acknowledged "benefits may arise in the future", particularly with regard to DLT.
Those looking for insight into proposed regulation can seek advice from professionals including regulatory consultants such as Robert Quinn Consulting and Thistle.