Of late, crypto assets have garnered a lot of attention from the public, media, investors, and regulatory institutions as evidenced by the consumer research note published by the UK’s Financial Conduct Authority (FCA) last week. As crypto momentum gains traction, there has been a parabolic rise in market participants with the entrance of financial service firms and institutional investors into the crypto space. Further, extensive media coverage and public awareness have led to a significant increase in the ownership of crypto assets.
According to the consumer research note, crypto asset ownership has spiked more than 27% since 2020 as the FCA’s estimates show 2.3 million adults now hold crypto assets, up from 1.9 million in 2020. Additionally, the FCA also observes that there has been a significant shift in the perception of users towards crypto assets — only 38% of crypto users regard them as a gamble, down from 47% the previous year. The note also sheds light on the fact that most investors view crypto assets as an alternative or complementary to the traditional mode of investments. Thirty percent of users who are investing in crypto are doing it as a part of a wider portfolio and are keener on investing in crypto assets instead of buying shares or other financial investments. As per the report, this is consistent with the finding that “that more people (up from 26% to 32%) showed net agreement that — I believe that cryptocurrencies and other alternative investments are better than investments provided in the mainstream financial sector, suggesting a possible shift towards more mainstream cryptocurrency acceptance.”
Even though the ownership of crypto assets has increased, the FCA notes that awareness does not necessarily equate to better understanding. So that investors understand the risks they’re taking on, it is essential to educate them on the meaning, implications, and risks involved in crypto assets. The increased public interest has, in turn, triggered the interest of regulatory bodies such as the FCA, the Bank of England, and the Payment Systems Regulator. They are closely monitoring the growth of the crypto ecosystem and expanding their regulatory scope. In particular, HM Treasury is attempting to increase its regulatory scrutiny by proposing that payment tokens be brought under its regulatory framework. The Treasury also seeks to extend the perimeter of financial promotions to include unregulated crypto assets, such as stablecoins.
Akin to the Treasury, the FCA is placing a lot of attention on consumer and investor protection when it comes to crypto assets. FCA heads up the registration of crypto asset firms, the deadline for which has been delayed to 31 March 2022. Regarding the delay, John Glenn, Minister of State Treasury, expressed concern that a “significant number of firms failed to implement appropriately robust AML control frameworks, and employ fit and proper personnel.” According to the written statement, while analyzing the crypto firm’s business models, the FCA found that a number of firms did not supply correct and/or sufficient information. The FCA requested these firms to resubmit their applications with correct information, which further fuelled the delay. In order to expedite the evaluation of the applications, provide feedback and give approvals, the FCA has announced that it will increase the number of resources assigned to assess the applications.
Hence the crypto firms looking to stay compliant should have robust compliance and anti-financial crime processes in place to ensure crypto can be transacted safely, no matter the entity or the individual. In turn, this will lead to greater consumer confidence and crypto will gain greater legitimacy as a pillar of the financial services ecosystem.
How Merkle Science Can Help
With the FCA increasing the number of resources spent on analyzing crypto assets firms’ AML compliance process, crypto businesses should have effective transaction monitoring and enhanced due diligence systems in place. Merkle Science’s highly customizable and easy-to-use platform provides businesses with 360-degree compliance support. Our predictive cryptocurrency risk and intelligence platform set the standard for the next generation of financial safeguards and criminal detection. Merkle Science proprietary Behavioral Rule Engine allows users to tailor the tool according to businesses’ own risk policies — which may differ from jurisdiction to jurisdiction.
As the FCA has extended its deadline for crypto asset licensing, crypto businesses that are able to proactively put compliance frameworks in place will be able to mitigate regulatory risks — giving them a clear competitive advantage. For more information, please refer to Merkle Science’s Guide to the UK Regulations for Crypto asset Businesses.
To find out how Merkle Science works for your business, please contact us via our website.