City minister presses UK regulator to show restraint on new crypto rules

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The City minister urged the UK regulator to take a softer approach to new crypto advertising rules just days before they came into effect this month, underscoring the tension between the two over the digital assets market.

The plea from Andrew Griffith to the Financial Conduct Authority was made in a letter on October 5, people familiar with the situation told the Financial Times, three days before the implementation date of new standards that ban unauthorised crypto firms from marketing to UK customers. 

The rules are among the toughest in the world as the regulator tries to beef up protection for consumers following the collapse in digital asset prices last year and the implosion of companies such as FTX.

Failure to comply can result in an unlimited fine and potentially up to two years’ imprisonment. They apply to all crypto companies, whether based in the UK or abroad.

Griffith told Nikhil Rathi, the Financial Conduct Authority’s chief executive, that crypto companies had expressed concerns to him about the broad scope of the rules, and the fact that the FCA has not yet published final guidance on what firms should do to ensure compliance. 

Griffith, whose government has publicly championed the UK as a crypto hub, then urged the regulator to exercise “forbearance” with firms as they adjust to the rules, and to introduce final guidance swiftly, the people said. 

Rishi Sunak, prime minister, has keenly advocated for crypto and for creating a regulatory framework that allows the sector to flourish in Britain. “We want to see the businesses of tomorrow, and the jobs they create, here in the UK,” he tweeted in April 2022 when he was chancellor.

The Treasury and Griffith declined to comment on the letter, as did the FCA, which issued more than 150 alerts on unauthorised crypto firms’ promotions in the first week of the new regime.

The FCA said it “raised concerns multiple times” about the government’s decision to accelerate the timetable for introducing the rules from six months to four, something the agency warned would “be a problem for the industry”.

Among the concerns cited by Griffith included the scope of activities that would be covered under the new rules, with some firms complaining to him that they did not realise decentralised finance, a type of crypto trading that bypasses intermediaries such as an exchange, would be captured or that their global websites might be in scope. 

“The conversations with the FCA and [Treasury] focused on the need for clarity around the regime — we want to avoid a situation where crypto companies choose to go dark in the UK,” said one industry figure briefed on the issue.

A second industry executive said Westminster’s “growth mandate is being hindered by the difficulty of firms to operate here”.

The FCA said the rules were set by legislation and it had no powers to modify them. “The shortened implementation period meant we could not publish the guidance before the regime came into force,” it said.

“They pull in opposite directions,” said Matthew Baker, partner at Bryan Cave. “Treasury and politicians jump up and down and make lots of noises about being financial centres and encouraging competition and the FCA is rightly or wrongly getting increasingly risk averse,” he added.

Griffith’s frustration with the FCA reflects a belief in government circles that the regulator’s board and leadership lacks digital expertise, according to one senior government insider. The FCA said it had “built extensive capabilities to oversee the new (crypto) regime”.

Still, there is a recognition at the Treasury that some of the crypto firms complaining about the new regime had not engaged with the regulator on the issue until this week.

Griffith has previously crossed swords with the FCA on other issues, including consumer duty rules and its handling of a recent review of politically exposed persons’ access to bank accounts.