Rethinking Crypto-Regulation for Crypto-Investors in the UK

Commercial banks profit by taking excessive risks with highly volatile financial assets, which contributed to the Global Financial Crisis (GFC). Financial Technology (FinTech) emerged as a response to the GFC, offering alternative financial intermediaries that traditional firms failed to provide. FinTech has made crowdfunding, peer-to-peer lending, payments, money exchanges, and virtual currencies like cryptocurrencies accessible. The COVID-19 pandemic showed that the crypto-market can be unpredictable, leading consumers to take risks. Financial institutions are offering crypto-derivatives and engaging with crypto-assets, which have proven to be volatile and detrimental to unsophisticated investors. Crypto-assets operate in non-territorial legal jurisdictions exempting them from regulations. The Financial Conduct Authority (FCA) and the European Securities and Markets Authority (ESMA) have taken measures to protect retail consumers from crypto-assets risks. Given their potential as an asset class and growing market participation, this chapter examines the ways in which the UK financial sector can monitor its risk exposure to emerging crypto-assets. It also proposes a crypto-market regulatory agency that supports retail investors and scheme-level regulation and self-regulation to reduce risks.