AJ Bell’s Laith Khalaf comments on the FCA’s consumer warning that Binance Markets Limited is not permitted to undertake regulated activities in Britain.
Laith Khalaf, financial analyst at AJ Bell, comments:
“Cryptocurrency is a victim of its own success because regulators across the globe are increasingly turning their beady eyes on cryptoassets, and companies like Binance that offer crypto services to consumers. This isn’t a step change in regulation which is going to knock the crypto craze on the head, but it is part of a growing trend of regulatory intervention in crypto markets. The idea that policy makers are simply going to allow a decentralised shadow payments system to emerge without any regulatory oversight is fantastical, and if the use of cryptoassets becomes more widespread, we can expect beefed-up regulation to follow suit.
“Regulators are concerned about three risks emanating from the crypto market. First and foremost is the potential for consumer harm, both through fraudulent activity and from losses sustained from crypto trading. FCA data released last week showed that over two million Britons now hold crypto, and while the majority appeared to be taking a sensible and measured approach, 14% had borrowed money to fund their investment, leaving them at high risk of suffering losses and being saddled with a nasty debt hangover.
“Financial watchdogs will also be keeping an eye on systemic risks that might emerge from crypto markets. The financial crisis was a wake-up call to governments across the world that even with considerable oversight, financial markets can build up a head of steam that leaves them hurtling towards a cliff edge. Crypto markets aren’t big enough to pose a serious systemic threat right now, but should they continue to grow and proliferate, regulators won’t be complacent on this front.
“Finally regulators are scrutinising crypto markets for signs they may be laundering money from criminal and terrorist activities. Since January, firms that wish to offer crypto assets in the UK must register with the Financial Services Authority and comply with anti-money laundering regulations. This is really one of the most basic building blocks of regulation for financial services firms in the UK, and the fact crypto providers have only just been required to comply with these rules shows they are at the very thin end of the wedge of regulatory oversight.
“The FCA has stated that Binance is not permitted to conduct regulated activities in the UK. Providing access to cryptocurrencies itself is not a regulated activity, but offering derivatives is, which is presumably the activity the FCA is clamping down on. The Binance website offers derivative products with up to four times leverage on a range of extremely volatile cryptocurrencies, which means gains, and losses, are magnified by a factor of four. It’s not surprising that such extremely risky products have drawn regulatory scrutiny.”