FCA sees increasing number of crypto firms being registered

Speaking at the City and Financial Global, Financial Services Investigations and Enforcement Summit yesterday (June 26), Smart discussed how the FCA was as much a law enforcement agency as it was a regulator. 

He said: “When it comes to countering financial crime, we are in many respects a law enforcement agency as well as a regulator.

"We must stay a step ahead of the criminals, whether it is to pre-empt the way they use new technology such as AI and deep fakes or whether it is to work together with the firms we regulate, to ensure their systems and controls keep a step ahead of those seeking to exploit them.”

One tool to prevent financial crime was through the authorisation of firms with Smart saying this was the key to high standards.

“Through a rigorous process, we check that firms have the right systems and controls in place, underpinned by sound business models, before they can be approved.

“This is to prevent potential harm to the wider system. We make no apologies for high standards but we do recognise that our processes in the past have been slower than we would like.

"That is why we have worked hard to eliminate our operational backlog and are holding ourselves accountable to help reduce unnecessary delays at the gateway,” he added.

As an example of this Smart highlighted that 86 per cent of initial crypto registrations the FCA received were rejected, withdrawn or refused because they failed to meet the appropriate standards of the anti-money laundering framework.

He said: “However, by working with potential entrants and supporting firms to navigate this process, we are seeing more crypto firms achieving registration under the money laundering regulations, with a total of 44 firms now registered. ”

Data sharing initiatives

Smart said the FCA was “strongly encouraging” firms and cross-sector partners to participate in data sharing initiatives to prevent harm. 

“Not all alleged breaches of regulation or the law are easy to spot. We cannot do our detective work alone. Criminals will always pivot to exploit the weakest firms and sectors, so sharing data and intelligence is a vital tool in strengthening our defences. 

“We work with the police, other law enforcement agencies and regulators to develop better intelligence sharing and prioritisation. This allows us to identify fraud networks whether they are home-grown and operating domestically or are part of a complex, cross-border web.”

Smart mentioned how the FCA had issued guidance clarifying the obligations for firms and others, including influencers when using social media for financial promotions.

“It is worth remembering that promotions aren’t just about the likes, they’re about the law,” he warned. 

Intelligence led organisation 

Smart believed whether the FCA was dealing with crime or regulatory breaches, to be successful in proactively identifying harm and disrupting it, it needed to be an “intelligence led organisation”.

He said: “I spoke earlier about data, and it is mind boggling to think that through our market oversight team, we received over 7bn transaction reports from over 1,300 UK firms last year. We receive over 500mn order book records every day. 

“Even ingesting this amount of data is a feat but this information is not just collected by us, it is analysed and developed to create tangible outcomes. We use this data to investigate regulatory breaches as well as to detect insider dealing and market abuse.”

Smart addressed what he called the “elephant in the room” which was the FCA’s recent name and shame proposals. 

“We have consulted very widely, and we are grateful for the many responses we have received. We will review the responses and will continue the engagement with industry and other interested parties – as Nikhil Rathi, our chief executive, said to parliament recently – we will take our time to consider the right way forward over the next few months,” he added.

Smart also said the FCA was focused on increasing the pace of its investigations which it would achieve by focusing resources on a streamlined caseload of investigations, aligning to the regulator’s priorities.

He concluded: “We must all invest in the capabilities and relationships that will prevent and pursue those who seek to undermine our hard-won reputation as one of the world’s leading financial services sectors.”

alina.khan@ft.com