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Charles Randell, chair of the UK's Financial Conduct Authority (FCA), has called for a coherent policy approach to cryptocurrencies and asked lawmakers to ensure post-Brexit legislation does not put the independence of his agency in jeopardy.
In a speech delivered at Queen Mary University on Friday (May 20), Randell outlined his views on how the FCA can play its part to ensure that regulatory and legislative responses to new challenges will effectively contribute to levelling up the UK.
These include listening to people and entering into effective partnerships with government bodies and agencies.
Crypto regulation for all, by all
UK regulators have a long history of partnering with the government and other regulators to tackle the main issues in financial services.
According to Randell, both strong and weaker partnerships have provided important lessons on how the UK should introduce future frameworks, such as the one for digital assets.
In early April, the UK government announced that it will consult on a world-leading regime for the crypto market, including the trading of tokens such as bitcoin.
Although the FCA, and Randell specifically, have cautioned numerous times of the risks involved in crypto investments, the FCA chair had also acknowledged the potential benefits of certain types of stablecoins and the blockchain technology.
He now stressed that a challenge like crypto demands a well-functioning partnership between the government, parliament and regulators.
“A partnership where all the partners deliver consistent policy and action to achieve defined and measurable outcomes.”
Policymakers must come together and answer questions, such as “What would success look like if we also took on regulation of the issue and trading of purely speculative crypto tokens?”, “Should people be encouraged to believe that these are investments, when they have no underlying value?” and “Should people without any significant savings or financial experience be encouraged or permitted to buy speculative crypto at all?”
“If the success of the FCA in regulating speculative crypto is going to be judged, … these fundamental questions need to be properly and openly debated and answered well before responsibility passes to the FCA, rather than afterwards,” Randell said.
These discussions must be built on extensive engagement with the public, he added.
Only by engaging with people, who reflect the wide diversity of the UK, can it help the country to shape regulations that provide real solutions to the real needs of the people, the FCA chair said.
Discussions with people “show the gap which often exists between people’s real-life experiences and the liberal theories that have shaped financial regulation”.
“Policy inputs based on received theories mean nothing if they don’t deliver better outcomes for people across the UK.
“That means realism about how long we need to prepare. Realism about how far many crypto firms will have to improve before they can be authorised. Realism about how consumers will actually behave online, supported by testing. And realism about the challenges of supervising a decentralised global activity which is an increasingly attractive conduit for organised financial criminals and money launderers,” Randell said.
Only by listening to the diverse needs of people can the FCA play its part in levelling up the UK, he said, adding that it requires a strong and independent financial conduct regulator.
Striking the right balance between accountability and independence
The Financial Services and Markets Bill, which will be debated in parliament in the coming months, is expected to change certain procedural rules along which the FCA currently operates.
These changes have become needed following Brexit as the FCA had powers transferred to it that previously sat with EU institutions with accountability through EU and member state parliaments.
This bill is expected to make significant changes to the relationships between the government, parliament and financial regulators.
Randell said parliamentary accountability is “central to our role”, but “so is independence from the government”.
“The independence of the FCA not only makes us more effective domestically; it’s a crucial part of our global reputation, enabling us to play a leadership role in the international standard-setting process,” the FCA chair stressed.
One of the proposals of the government would require the FCA to pursue a new objective in addition to the existing ones. The new objective would task the FCA with facilitating the long-term growth of the UK economy, including through the lens of international competitiveness.
This objective, however, would be secondary to the three primary objectives of the FCA, which are: the need to ensure safe and sound firms; well-functioning markets; and to protect consumers and promote competition.
Randell welcomed this approach. He warned that adding the fourth objective as a primary mandate would put the interests of the financial services industry ahead of the interests of other people in society, “producing an island of prosperous financial services professionals in a sea of inequality”.
“That type of growth would be the opposite of levelling up.”
The government has also proposed taking new powers to intervene in the FCA’s processes.
These include the power to direct the FCA to review areas of its rules and submit FCA policy proposals to a new panel that would scrutinise in advance the cost-benefit analysis that the FCA already undertakes.
Raising concerns about the power of ministers to direct the FCA to prioritise areas may take resources from other issues the regulator considers to be more important, he said cautioning that this could undermine the FCA’s independent judgement and accountability.
He asked lawmakers to be “very clear that these interventions really will only happen in exceptional circumstances”.
“The risk that the government and parliament need to guard against is creating a strong channel for lobbying by vested interests who want to bypass our public interest objectives of protecting consumers and promoting competition, using politicians to get the rules changed in their favour.”
He also warned that the proposed advance scrutiny of cost-benefit analysis may hinder the FCA’s ability to be agile in responding to harm, which is particularly crucial now when the financial landscape is changing at a rapid pace.
The FCA has taken significant steps to strengthen its culture of acting as an agile and assertive regulator.
Last Thursday, the regulator announced that it speeded up its process for removing firms that do not use their regulatory permission.
“In the current framework, the FCA as an independent regulator with a strong consumer focus provides the balance that is needed to reduce the risk of lobbying and interference.
“The Future Regulatory Framework must preserve that balance and reinforce the ability of Parliament to play its role in holding regulators and the Government to account.”
