UK Regulator Proposes Easing Crypto Rules to Boost Industry

The United Kingdom's financial regulator has proposed exempting cryptocurrency companies from adhering to certain regulations, including those that ensure financial service companies operate with integrity and prioritize customer interests. This move is part of a broader effort to foster a competitive and sustainable cryptocurrency industry within the UK.

The proposal, outlined in a consultation paper released by the UK's Financial Conduct Authority (FCA), suggests exempting cryptocurrency firms from four core principles. These principles include the requirement for companies to conduct business with integrity, operate with professional skill and due care, pay due regard to the interests of customers, and ensure that any advice or discretionary decisions made on behalf of customers are suitable and appropriate.

The FCA's executive director for payments and digital finance emphasized the need to balance innovation, market integrity, and market confidence. The regulator acknowledged that while the proposal does not eliminate the inherent risks of cryptocurrency investments, it aims to help industry companies adhere to common standards, thereby providing consumers with clearer expectations and protections.

Despite the high-risk nature of cryptocurrencies and their volatile prices, the FCA stressed the importance of protecting consumers from harmful business practices. The regulator also proposed stricter regulations in areas such as operational risk, citing a 15 billion dollar hack on the Dubai-based cryptocurrency exchange Bybit in February as an example of the need for robust operational resilience controls.

The FCA is seeking public feedback on two key issues: whether the "consumer duty" principle, which requires companies to prioritize customer interests, should apply to cryptocurrency firms, and whether customers of these firms should have the right to seek compensation through the Financial Ombudsman Service. The consultation period for the paper ends on November 12.

This proposal comes as the UK continues to explore the best regulatory pathways for digital assets, including potential collaboration with the US on this front. The UK's approach to cryptocurrency regulation has been evolving, with a focus on fostering innovation while ensuring consumer protection and market stability. The FCA's latest move is part of this ongoing effort to create a regulatory framework that supports the growth of the cryptocurrency industry while mitigating its risks.