By Norah ODonnell
The FCA’s fine points to a ‘one-off’ enforcement action, not a widespread crackdown on the sector, as highlighted by a legal expert.
After that fine, crypto investors are worried about a possible regulatory crackdown in the entire United Kingdom after Coinbase exchange’s British trading wing was fined.
Investor worries increased on July 25 after Coinbase’s UK arm was fined $4.5 million for breaching a voluntary user agreement with Britain’s Financial Conduct Authority (FCA) that would help prevent it from onboarding customers considered ‘high risk’ by the regulator.
In a majorly worrying sign, the fine marks the first incident in which the FCA has taken enforcement actions according to the Electronic Money Regulations 2011 Act.
While some of these investors are worried that this might signal increased scrutiny for most other crypto exchanges in the region, legal experts do not see it as a threat to the general ecosystem.
FCA’s Fine Was ‘One-Off’ Enforcement Action: Legal Expert
FCA’s case against Coinbase’s UK arm, CB Payments Limited (CBPL), suggests a ‘one-off’ enforcement action, not a tougher stand against the crypto sector, based on Charlotte Tregunna, partner at business crime law firm Peters & Peters.
The fine does not essentially suggest increased enforcement for crypto platforms, as highlighted by Tregunna:
“The fact that the FCA hasn’t used its enforcement powers until now suggests that it was using these as a last resort. CPBL had all the time in the world to sort out their systems and controls, and yet they didn’t in three years. It’s an obvious breach and the FCA can’t really ignore it if they were given adequate time to resolve it.”
She also explained that receiving such fines for breaching voluntary requirements is considered quite rare.
“If the FCA becomes involved, usually firms do everything they can to resolve the situation, particularly where it is a voluntary requirement – for example, if the firm has voluntarily agreed to improve its systems. It usually doesn’t have to get to this stage of enforcement.”
Based on the comments of the British regulator, the FCA’s investigation was focused primarily on the company’s e-money transmission services instead of its crypto asset transactions.
FCA Is Targeting A Crypto-Friendly Approach
Although the regulator is aiming for a crypto-friendly approach, the crypto platforms cannot keep up with compliance.
Despite this fine, the FCA seems to be preparing to become a crypto-friendly regulator that does not compromise innovation, as highlighted by Tregunna:
“The FCA ultimately wants to be seen to be crypto and e-money-friendly, within reason. It will provide opportunities for those providers and issuers to improve their standards and compliance frameworks, but if those opportunities are squandered then the FCA hasn’t really got much of a choice but to enforce.”
Yet, she discovered that part of the issue is the inability of crypto networks to maintain corporate compliance, which is now becoming quite challenging in the thriving crypto space.
Tregunna added:
“This is perhaps symptomatic of the fact that corporate governance and compliance culture within e-money issuers and crypto asset service providers has not been able to keep up with the inexorable rise in the use of those services over the last few years.”
She believes that today’s new protocol needs to have these governance networks set in place before they launch protocol, or risk playing ‘catch-up’ as has been the case with Coinbase’s CBPL.
Crypto experts and analysts believe that the correct regulations will help the nascent crypto sector to grow and, in turn, increase the rate of adoption. With that in mind, more operators have volunteered to help authorities come up with regulatory policies that will not stifle innovation in the crypto industry.