Christopher Woolard has spoken on regulating financial innovation. He explained how valuable early engagement is, and how working with innovative firms helps FCA to get a good bird’s eye view of what it should keep its eye on.
Part of his speech highlighted how FCA, with other regulators, has been speaking to Facebook about Libra, its new “stablecoin” – essentially, a cryptocurrency that is supposed to be less volatile than other cryptoassets – which could be very significant if it comes to fruition. It will highlight the need for regulators to be on top of things and to ensure innovation is in the interests of consumers. Stablecoin would be a development that could fundamentally affect the financial services system and, while the regulatory sandbox has worked well to date, this would take innovation to another level.
For instance, stablecoin could be e-money, so its issuer would require authorisation as an e-money issuer. Or it could operate as a collective investment scheme, thus falling subject to different regulatory requirements. Or, it could be outside the regulatory perimeter. These all create issues for regulators, including that FCA questions whether a token governed by an algorithm can be “stable”, and it has no criteria or legal basis for endorsing claims like this.
So regulators need to ask questions about what new products are for, who they are for, are they really innovations and will they benefit consumers and competition or cause risks. Regulators expect issuers to consider whether their products are beneficial, whether the target market will be able to make an informed and balanced judgment of the risks, how they will address AML and similar issues and whether they have done their due diligence properly.
FCA continues to encourage crypto businesses to engage with it at an early and full stage.