Syed Rahman and Ulrich Schmidt explain the Financial Conduct Authority’s latest consultation regarding its planned crypto regulatory regime.
The Financial Conduct Authority (FCA) has put the Consumer Duty at the heart of its latest consultation in advance of digital assets regulation coming into effect next year.
The Consumer Duty is an FCA rule that sets a high standard for how financial firms should treat retail customers. Under the Duty, companies must act in good faith, avoid foreseeable harm and help people achieve their financial goals; while offering clear information, fair pricing and support during and after the point of sale.
The FCA is seeking feedback on how the Consumer Duty will apply to cryptoasset firms and deliver good outcomes for retail customers, in order to achieve an "open, sustainable and competitive crypto market that people can trust".
The regulator believes the Consumer Duty will provide crypto asset businesses with the flexibility they need to assess the needs of customers and tailor the products they offer accordingly. But it has said that while the Duty can set "appropriate standards" for crypto companies, risks do remain. It emphasises that its role is to help ensure current and potential crypto investors understand those risks – not to remove all the risk. It is taking responses on this latest consultation until March 12 this year.
Live
The new crypto regime is expected to go live in October 2027. The FCA intends to open the application gateway for it this September.
The FCA added: "We have made significant progress in delivering our crypto roadmap and are helping firms to meet our standards and get ready for when the gateway opens."
The FCA has already held one consultation on how Consumer Duty could apply to crypto. This found that there was resistance from those in the crypto sector to the FCA view that crypto would not be fair value under the Duty if a percentage-based charging scale remained the same on an asset rising in price, if costs were stable. The FCA has since said it would not include this in its guidance. But it has emphasised that crypto businesses must ensure a reasonable relationship between the price paid for a product and its benefits.
According to the FCA, crypto assets will be classified as restricted mass market investments – only sold to knowledgeable and / or wealthy investors, with a 24-hour cooling-off period for new customers. But UK-issued stablecoins will not be classified in this way. Non UK-issued stablecoins will also not be classified like this but will come with extra warning information about risk.
Blocks
There remains the potential for stumbling blocks in the consultation process. Historically, we have seen the crypto sector argue against steps that the FCA has introduced. There are the ever-present issues of consumer protection versus innovation, and disclosure and transparency versus commerciality, to be negotiated.
With this in mind, the FCA will have to balance imposing restrictions and requirements on companies to protect consumers (which will always receive a certain amount of negative feedback, no matter how obvious the requirements) with allowing the companies freedom to grow and boost the UK financial sector. It will also have to ensure it does not approach the requirements under the Consumer Duty in the same way it does with traditional financial institutions.
But it is worth noting that the crypto sector is evolving constantly and has done so at an extremely rapid pace over the past 10-15 years. As a result, multiple consultations were always likely and are a much more preferable option than a lack of consultation.
