The UK’s Financial Conduct Authority (FCA) has released a consultation paper exploring how traditional finance (TradFi) rules could be adapted for crypto companies. The aim is to strike a balance between innovation and competitiveness while safeguarding consumer protection and market integrity. (Cointelegraph)
What the FCA is proposing
- The FCA seeks feedback on whether Consumer Duty — a key principle requiring firms to deliver fair outcomes for customers — should fully apply to crypto-asset businesses and activities. (Cointelegraph)
- The paper also addresses complaint handling, proposing that consumers might be able to refer disputes involving crypto to the Financial Ombudsman Service, similar to complaints about banks or brokers.
- Some existing rules such as operational resilience, anti-money-laundering (AML) procedures, and anti-financial crime controls will remain mandatory, but crypto-specific tailored adjustments are under consideration. (Cointelegraph)
Why this matters
- Better fit for crypto firms: Traditional financial regulations were built for banks and insurers, not for decentralized networks or digital asset platforms. Tailoring them could reduce unnecessary compliance costs and foster innovation. (Cointelegraph)
- Boosting UK competitiveness: Clear, pragmatic rules may attract global crypto companies to the UK, aligning with the government’s ambition to become a crypto hub, while avoiding the pitfalls of under-regulation. (Cointelegraph)
Key risks & open questions
- Consumer protection trade-off: Loosening rules like Consumer Duty could leave users more vulnerable to losses and scams, especially given crypto’s volatility.
- Enforcement complexity: Crypto is global and often pseudonymous, making supervision and cross-border enforcement difficult.
- Regulatory arbitrage: If “tailored rules” create loopholes, firms might exploit them, undermining transparency and trust in the system.
What to watch next
- The deadline for public comments, which will reveal how industry players and consumer groups respond.
- The FCA’s follow-up draft rules, which will define exactly which TradFi requirements are being eased or adapted.
- How these proposals fit into other UK crypto initiatives, such as stablecoin regulation and market abuse prevention frameworks.
Bottom line
The FCA’s consultation is an important step toward regulatory clarity for the UK’s crypto industry. By customizing TradFi rules for digital assets, the UK has a chance to balance innovation with protection — but whether it becomes a competitive advantage or a regulatory gap will depend on how the final rules are implemented.
