The Financial Conduct Authority, which is known for being critical of digital assets, took a different tack in its first CryptoSprint, held earlier this month.
Over the course of two days, participants worked in mixed-discipline teams to explore the challenges facing the crypto industry, including how the FCA, the U.K.’s financial regulator, can support and balance innovation with standards that protect consumers, the FCA said on its website.
The CryptoSprint explored how to handle disclosing information related to the issuance of crypto assets, regulatory obligations and custody regulations. Many digital asset company executives told CoinDesk they wanted a collaborative approach that allowed for innovation. The FCA's CryptoSprint made some of its attendees feel like that was actually possible.
“I think the way that the FCA has engaged with the industry at this early stage is a great thing, because it's a sign that they're listening so hopefully we can actually get regulations that fit the industry,” said Michael Johnson, head of compliance at U.K.-based crypto wallet provider Zumo.
The FCA echoed the enthusiasm.
“The last two days have been hugely positive, with participants collaborating closely on what future policy might look like," an FCA spokesperson told CoinDesk in a statement. "It was striking that the general view on future regulation for the crypto market matches ours, with consumer protection and market integrity key to providing confidence in this evolving sector.”
At the CryptoSprint, the FCA heard from a range of players within the digital asset sector including chief executives, compliance heads, academics and lawyers, Johnson told CoinDesk. The event had more than 600 applications and 96 attendees in addition to the FCA staff facilitating the event, Johnson said.
FCA Chief Executive Nikhil Rathi; the head of banking at HM Treasury, David Raw; and Jessica Rusu, the FCA’s chief data, information and intelligence officer, were all at the event, said Ian Taylor, a member of Crypto UK, a local trade organization. These attendees showed that the FCA was taking the event seriously, Taylor said.
The crypto experts attending the event had to organize problem statements, discussing issues the regulator was exploring, into themes and explore them before presenting on different topics. FCA employees were positioned to take notes.
International companies attended, including a representative from the San Francisco-based Kraken exchange.
“It was reassuring to participate in well-formed, open and frank policy discussions with the FCA,” Curtis Ting, Kraken's managing director for Europe, the Middle East and Africa, said. “We were particularly encouraged by the CryptoSprint’s foundational acknowledgement that offshore firms remaining unaccountable to U.K. regulations pose a challenge to the U.K.’s ambition to become a world-class fintech hub.”
Participants agreed that a global effort to coordinate regulation worldwide would help the digital asset sector mature and grow in terms of adoption, Sabrina Wilson, chief operating officer at Copper, a custody solution provider on the FCA's temporary registration regime, said in a statement.
According to CryptoUK’s Taylor, roughly half those attending the CryptoSprint believe the regulator has not listened to the industry in the past. However, that does not mean it will continue to ignore cryptocurrency representatives now.
The remainder of those attending believe the FCA’s move was positive, Taylor said.
“Personally, I can only go by my past experience. The FCA hasn't really been listening to the industry. However, the main positive is, they're willing to learn,” Taylor said.
The FCA set up a temporary registration regime (TRR) to allow crypto companies without full registration to continue to operate as its licensing regime took effect. Over 100 companies applied for registration, but there are currently only five companies on the TRR list, while 34 have full authorization.
The registration regime from the anti-money laundering perspective has been difficult on the industry, Zumo’s Johnson said.
“If we're going to protect U.K. customers, how can we encourage people to be regulated within the U.K. so they can more fully meet their own objectives?” Johnson said.
What the industry wants
Having a self-regulatory organization, where a trade body is given powers to regulate and manage the industry was a “common narrative” among industry participants but the FCA did not have any appetite for this, Taylor said.
There was an interest for incremental regulation, Johnson said.
“If you do it in piecemeal sized chunks, it means that the industry can actually manage those chunks and keep moving fluidly,” Johnson said.
The FCA made it clear that the process was an information-gathering exercise that would help inform policy, but the proposals people suggested were not necessarily going to be taken forward, Johnson said.
The regulator will also be running a virtual sprint for applicants that could not attend. Johnson said the FCA has indicated a desire to regularly engage with the industry over the coming months.
The FCA will release more information about the virtual sprint this summer, a FCA spokesperson told CoinDesk.
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