The UK’s Financial Conduct Authority (FCA) aims to strike a balance in regulating cryptocurrencies by merging the best elements of traditional finance (TradFi) and decentralized finance (DeFi).
This approach is to ensure neither over-regulation nor under-regulation disrupts the growing crypto market.
Matthew Long, the FCA’s director of payments and digital assets, emphasizes the necessity of this strategy for effective regulation during his speech at the FT Crypto and Digital Assets Summit on May 8.
Long stated, “What we’re trying to do is take the best of traditional finance and understand the nuance of the system that we’ve got.”
He elaborates that the regulatory framework should mirror the existing structures in traditional finance but adapt to the unique challenges of cryptocurrencies.
This includes recognizing the global nature of the crypto market which necessitates a responsive regulatory approach.
“The simplest and most straightforward answer is that they [FCA] are trying to take the best of traditional finance, so it’s the same risk, same regulation and not reinvent the wheel,” Long noted, adding: “But we must and we absolutely must respond to the differences in cross border globalization otherwise. So to be frank, it’s a bit of both.”
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During his discussion, Long pointed out that some regulatory aspects previously considered straightforward by the FCA turned out to be complex, and vice versa, indicating a learning curve in adapting regulatory measures to crypto-specific issues.
Moreover, Long highlighted the existence of risks in both centralized (CeFi) and decentralized finance sectors, stressing that tools for combating issues like money laundering in CeFi could be tailored for the crypto environment.
This is part of a broader FCA initiative to foster a “cleaner, safer, and better” crypto market.
The UK’s increasing involvement in the cryptocurrency space is evidenced by the FCA’s recent activities. Since 2020, the authority has approved 38 out of 300 applications from crypto firms, reflecting its proactive stance in regulating the sector.
Additionally, the FCA has enhanced its capabilities in monitoring and preventing market abuse and illegal crypto advertising.
This underscores the UK’s commitment to establishing a regulated yet thriving crypto economy.
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