The UK market regulator has been paying close attention to the turmoil in the crypto market since the Terra eruption, one of the biggest tests of decentralized money.
Stablecoin’s recent market volatility must be taken into account when Watchdog begins working with the Treasury to develop and implement new rules for cryptocurrencies later this year, said Sarah Pritchard, executive director of markets for the Financial Conduct Authority.
“The innovation lasts if it works well, and obviously, we’ve seen results and some issues that could arise,” Pritchard, who oversees FCA’s work on crypto, said in an interview Wednesday. About 70% of adults aged 40 and under who bought crypto mistakenly assumed that digital resources were regulated, he said, citing an opinion poll published by the FCA in October.
Pritchard’s comments come in the wake of the fall of TerraUSD, a stablecoin that algorithms and swaps with his sister Token Lunar to maintain its peg in US dollars instead of a dollar-equivalent asset reserve. The combined market value of the two tokens was more than $ 40 billion prior to the deletion, which dropped to about 80 380 billion from the larger crypto sector.
Stablecoins are an essential part of the crypto ecosystem, with traders using tokens as a way to maintain a flat value without the need to convert them into fiat currency. In times of turmoil, investors may turn to them as a safe haven for their portfolios or simply as a means of digital payment.
“It really shows in mind that there are really significant issues here, both in terms of a well-functioning market and obviously consumer protection,” Pritchard said. “While we’ve seen significant price movements over the last week, this brings it to the fore and it’s important to make sure people understand where they put their money at risk.”
The Treasury said in April that it wanted to amend existing laws for electronic money and payment firms to include the issue of stablecoins and the provision of wallets, as well as custody services. Companies that engage in stablecoin activities may require Bank of England oversight as well as FCA approval if their services are used by a large number of consumers due to their systemic risk.
Until now, the FCA was primarily limited to ensuring that crypto companies met its standards under anti-money laundering rules. Only 34 of the more than 100 applicants have filled the bar in an effort to scratch the industry. The UK Watchdog is set to acquire new powers from the Treasury to handle cryptocurrency regulation later this year, with more details to be announced in upcoming financial services and market bills.
The regulator held its cryptosprint event earlier this month to serve as a practice to listen in advance to these changes. The two-day event was attended by Nikhil Rathi, CEO of the regulator and about 100 participants, including senior staff, FCA-registered crypto firms, industry bodies, investment banks and companies across professional services. The session was “significantly oversubscribed,” Pritchard said, with more than 640 applicants.
Issues discussed during the event included whether the FCA should build its ability to enforce rules across crypto and geographical boundaries, according to two attendees who were not allowed to speak publicly about the event. Participants were particularly concerned about the speed of issuing new regulations and the custody of cryptocurrencies, they said. They were also concerned about the current environment of crypto exchanges, which act as real guardians for risky areas, such as decentralized funds, when deciding which tokens are appropriate for the listing.
An FCA spokesman declined to comment on the talks but said the event was “extremely positive”, with two virtual sprints to follow in early June.
© 2022 Bloomberg