The UK financial regulator is on the trail of FTX. The Financial Conduct Authority has said that the cryptocurrency exchange FTX may be offering financial services or products in the United Kingdom without its license.
FTX is one of the world’s largest crypto exchanges. This year, it has raised its profile by helping digital asset platforms that have faltered as cryptocurrency prices have decreased.
While other crypto exchanges have been feeling the effects of the ongoing crypto winter, FTX has continued to grow. In fact, their revenue in 2021 reportedly jumped by 1,000 percent to $1.02 billion. And they’re not showing any signs of slowing down – even with the current market conditions. They’re expected to bring in $1.1 billion in revenue in 2022 after ending the first quarter with $270 million.
Regulators around the world are still debating how to regulate cryptocurrency businesses best. The FCA said in July that global rules are required to govern international crypto companies and “keep markets clean.” FTX has yet to respond to the allegation by the British financial regulator.
Almost all firms and individuals offering, promoting or selling financial services or products in the UK have to be authorised or registered by us […]This firm is not authorised by us and is targeting people in the UK.
In addition, the Financial Times reports that FTX has halted providing crypto derivatives services for retail customers in the United Kingdom. That was followed by the FCA’s prohibition on selling and distributing cryptocurrency derivative products to retail traders.
Meanwhile, the FCA’s criticism of FTX was not the first time it sounded an alarm about a cryptocurrency corporation. Last year, it criticized Binance, which promised to become compliant with the law as a result.
With regulatory approval, the European arm of FTX, based in Switzerland, announced its ambitions to break into the UK market earlier this year. However, the current turn of events may cancel the expansion plans FTX had.
This year in April, the UK made its cryptoasset register permanent. This requires that any firms conducting cryptocurrency activity within the country meet FCA’s anti-money laundering standards. While some big businesses like Gemini, Kraken, and Crypto.com are on the register, others such as FTX, Coinbase, and Binance are not, though all of these remain accessible to UK consumers.
FTX falls under FCA’s crypto regulations
New cryptocurrency-focused regulations were instituted in January 2020 to allow the FCA to supervise businesses operating in the space and enforce AML and counter-terrorism financing regulations. The spokesperson for the FCA explained this back in August:
Successful registration depends upon a firm meeting the minimum standards we expect to prevent money laundering and terrorist financing, and we have seen too many financial crime red flags missed by the crypto asset businesses seeking registration.
Although the immediate repercussions for unregistered entities are unknown, the FCA will not be gentle in its enforcement. The UK’s ePayments, one of the largest electronic payment providers, closed down on September 13. This is after receiving an order from the FCA due to financial crime control weaknesses.
The Federal Trade Commission (FTC) has been keeping a close eye on the company in recent weeks, as it has with other firms. On August 19, the Federal Deposit Insurance Corporation (FDIC) delivered an enforcement letter to FTX, alleging that it had misled customers about certain cryptocurrency-related services being FDIC-insured.
According to an FCA guide, crypto exchange and wallet providers must register with the FCA for anti-money laundering supervision if their digital asset activity occurs in the UK.
How do crypto regulations affect investors?
The FCA and other financial regulators around the world have been trying to protect consumers and set standards in crypto markets. However, this has been difficult because many of the largest groups are based in offshore jurisdictions. FTX and Cayman Island-registered Binance have set up American affiliates to appease US authorities, but they continue to offer services from their international base.
If UK clients deal with FTX, they won’t have access to the same consumer protections that are standard in the UK. This includes The Financial Ombudsman and Financial Services Compensation Scheme. Essentially, these consumers will unlikely get their money back if something goes wrong.
Depending on the country’s crypto regulations, investors can face significant consequences. For example, a nation with tight cryptocurrency exchange rules might make trading cryptocurrencies more difficult.
Alternatively, suppose a country has weak or non-existent crypto rules. In that case, it may result in a Wild West-style environment in which investors are more likely to be defrauded or subjected to other negative consequences. In a nutshell, investors must understand the crypto regulatory climate in any given nation before putting money there.