The chairperson of the UK’s Financial Conduct Authority (FCA) has criticised the financial promotion of crypto-assets on social media, while talking up the benefits of regulated cryptocurrencies in the payments space.
Platforms’ efforts to crack down on fraudulent advertisements are welcome, but a permanent and consistent solution to the problem of online fraud from paid-for advertising requires legislation, according to Charles Randell, the chair of the FCA and Payment Systems Regulator (PSR), in a speech that he delivered on Monday (September 6).
“Consumer awareness requires online platforms to step up. They can give advice about scams at the moment when consumers are about to make bad decisions,” he said, telling onlookers that the FCA and PSR were going to work with online platforms that want to protect both consumers and their own brands.
In addition, he warned the audience that the regulators were going to name firms that fail to play their part, thereby harming their users.
“The tide of regulation is turning all over the world and online platforms should expect a future where regulation addresses the significant risks they pose in the same way as other businesses,” he said, calling for a principle of “same risk, same regulation”. This is the approach that Australian regulators and the European Commission are taking already.
In his speech, Randell criticised none other than Kim Kardashian, probably becoming the first regulator to do so.
“When she was recently paid to ask her 250 million Instagram followers to speculate on crypto-tokens by ‘joining the Ethereum Max Community,’ it may have been the financial promotion with the single biggest audience reach in history,” he pointed out.
In line with Instagram’s rules, the reality television star told the public that this was an advertisement.
However, she did not have to say that Ethereum Max, not to be confused with Ethereum, was a speculative digital token created a month before by unknown developers — one of the hundreds of such tokens that fill the crypto-exchanges.
“I can’t say whether this particular token is a scam, but social media influencers are routinely paid by scammers to help them pump and dump new tokens on the back of pure speculation,” he said, noting that some influencers can even promote coins that turn out to simply not exist at all.
There are no assets or real-world cashflows underpinning the price of speculative digital tokens — even the better-known ones such as Bitcoin — and many cannot even boast a scarcity value, Randell noted. He said that such tokens had only been around for a few years and that he did not know how the story was going to end “for those who want in”.
“Despite this, the hype around them generates a powerful fear of missing out from some consumers who may have little understanding of their risks,” he said, adding that there was no shortage of stories of people who had lost savings by being lured into the crypto-space with the promise of quick gains.
The FCA does not regulate speculative crypto-tokens and the Financial Services Compensation Scheme does not cover consumers who lose money, Randell pointed out.
Randell thought that legislators who wanted to instruct the government to regulate cryptocurrencies ought to consider three things. These were: (i) how to make it harder for digital tokens to be used for financial crime; (ii) how to support useful innovation; and (iii) the extent to which consumers should be free to buy unregulated, purely speculative tokens and to take the responsibility for their decisions to do so.
In spite of the risks that crypto-assets pose if they remain unregulated, Randell did also note that the emergence of such assets might benefit society, particularly in the payments arena.
There are promising use cases for stablecoins in both the retail and wholesale markets, he said, putting particular emphasis on retail cross-border payments, in relation to which frictional costs can be high.
“When we come to assess stablecoin propositions, the FCA and the PSR will be guided by our objectives of protecting consumers and users of payment systems, competition and innovation and market integrity,” he said.
Stablecoins could provide valuable competition in a payments market where a small number of players hold very strong positions, he continued, noting that they could help the PSR in its crusade to promote competition between payment systems.
However, as the phenomenon develops, a stablecoin payment system could grow to occupy a central position, he said, adding: “We will also need to think about wider competition issues including fair access.”
“We understand how important it is to provide a predictable and stable regulatory environment in which businesses can innovate with confidence. We will work closely with our regulatory partners to ensure that our approach is clear and our actions are coordinated and complementary.”