UK regulators should be given more powers to protect consumers from dubious crypto investments being promoted online, the Financial Conduct Authority’s chair has said, as he acknowledged that a full rule book for digital assets would take some time to deliver.
Charles Randell, the FCA chair, said it would take “a great deal of careful thought to craft” a full set of rules for decentralised digital tokens, but that in the meantime more urgent action was required to stop risky or fraudulent crypto investments from luring investors — including via social media influencers who help “pump and dump” new coins.
“It’s difficult for regulators around the world to stand by and watch people, sometimes very vulnerable people, putting their financial futures in jeopardy, based on disinformation and fear of missing out,” Randell said in a speech on Monday.
His comments come as the UK Treasury is considering a proposal, introduced last year, to give the FCA a larger role in controlling the promotion of crypto assets under tougher standards that at present apply to marketing traditional financial products.
The speech echoes calls from Gary Gensler, chair of the US Securities and Exchange Commission, for Congress to give his agency more powers to protect investors in “Wild West” cryptocurrency markets that he said were “rife with fraud, scams and abuse”.
Randell singled out influencers, as well as paid online advertising, as key venues for questionable messaging targeting consumers, and said online platforms — including Facebook, Microsoft, Twitter and TikTok — needed to step up their efforts to curtail misleading content.
“Social media influencers are routinely paid by scammers to help them pump and dump new tokens on the back of pure speculation. Some influencers promote coins that turn out simply not to exist at all,” he said.
About 2.3m people in the UK own digital assets, according to the FCA’s research. Although the regulator has repeatedly warned that investors in cryptocurrencies should be “prepared to lose all their money”, fewer than one in 10 potential crypto buyers have heard those warnings. Some 12 per cent of crypto owners wrongly believe that they enjoy regulatory protection and potential compensation for losses.
Social media is particularly influential with younger people, who have piled into crypto. More than 80 per cent of 18- to 23-year-old investors said social media has influenced their investment decisions, according to research by F&C Investment Trust.
Randell said new rules should require promoters to be clear about the risks of crypto products and explain that they were not subject to regulatory approval. He said the standards should also apply to paid ads on online platforms, content that was “often made by unidentifiable promoters in other jurisdictions”.
The FCA chair also pointed out the difficulties posed by offshore players for national regulators that were trying to set crypto standards. “Any effective system of regulation would require a business seeking registration or authorisation with the FCA to bring itself firmly within our reach, with people and resources that we could access in order to supervise and enforce our requirements,” said Randell.
The regulator last month said it was “not capable” of properly supervising the international crypto exchange Binance despite the “significant risk” posed by the cryptocurrency exchange’s products.
“The tide of regulation is turning all over the world, and online platforms should expect a future where regulation addresses the significant risks they pose in the same way as other businesses,” said Randell. “Same risk, same regulation.”