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The former boss of the UK’s financial regulator has attacked the government’s plans for overseeing the crypto industry, warning that investors risked being harmed if crypto assets were labelled as regular investments.
Charles Randell, who quit as chair of the Financial Conduct Authority last year, said the government’s approach would bring “retail crypto speculation firmly into the mainstream” even though fraud “is a feature, not a bug” of much of the industry.
His comments came after the government unveiled plans earlier this week to regulate the crypto industry in a similar way to traditional financial investments that would require all crypto companies to be authorised by the FCA.
It said the sector “should follow the standards expected of similar existing financial service activities, commensurate to the risks they pose”. The move would boost protections for investors, it added.
Calls for crypto regulation have grown in the past year, after the collapse of the exchange FTX led to losses for thousands of ordinary investors.
But Randell said that under the plans, crypto would “be badged as an ‘investment’; offered in UK markets on the basis of a document that will be deceptively similar to a prospectus for shares, but without many of the same rules”.
The government had failed to “quantify the consumer harms that could result from holding crypto out as a regulated investment”, he added.
The Treasury cited support for most of its proposals from “the large majority of respondents” to a consultation earlier this year. But Randell, who is now a consultant at law firm Slaughter and May and commissioner at the Financial Inclusion Commission, said the document relied “on the old numbers game . . . when the majority of respondents stand to make money from boosting crypto”.
He wrote on LinkedIn: “[The government] asserts that allowing this ‘technology’ in the retail space will bring unquantified ‘benefits’ including jobs and taxes. There is no attempt to quantify the consumer harms that could result from holding crypto out as a regulated investment.”
Ministers want to position the UK as a global “crypto hub”. Their enthusiasm for an industry that has seen several high-profile companies collapse, resulting in huge losses for ordinary and institutional investors, has led to clashes with the FCA.
Randall, who has spoken of the pressure he faced from ministers when he was at the FCA over its approach to the crypto sector, said he expected the political interference would continue. As a result, he rated the FCA’s chances of implementing any new crypto regulation as “low”.
He said: “If it does try to enforce the requirements that the minister has approved, it can, based on recent experience, expect a letter from the minister asking it not to do so.”
Last month, City minister Andrew Griffith urged the regulator to take a softer approach to new crypto advertising rules, urging the agency to exercise “forbearance”.
The government, which has said it plans to bring forward legislation to implement the new crypto rules in early 2024, said: “Britain has a long history of encouraging enterprise and remains committed to growth and innovation.”
It added: “Crypto is here to stay and these assets are owned millions by millions in the UK – so it’s right that we regulate the market to better protect customers from harm.”
