After the stunning internal collapse of FTX, digital asset enthusiasts who had been complaining about the cautious attitude of UK financial regulators towards cryptocurrencies are a bit quiet.
Had the FCA been more welcoming to crypto companies including FTX, many UK investors could face much bigger losses.
Government ministers were among those urging the Financial Conduct Authority (FCA) to be more accommodating. In March, John Glenn, then the city’s minister, said he told FCA CEO Nikhil Rathi that the regulator needed to be “more responsive” to crypto companies.
These comments raised concerns that ministers were putting undue pressure on regulators – concerns that then escalated. financial news It revealed that in February the Conservative Party had received a £500,000 donation from crypto investor and lobbyist Christopher Harborne.
At the time, the Tories refused to say whether this was a one-off or, I was told, the first of a series of quarterly payments. Recent records with the Electoral Commission show that Harborne did indeed donate a further £500,000 in May. This brought his total payment in the first half of the year to £1 million, making him the party’s largest donor.
The Conservative Party insisted there was no link between the donations and its support for cryptocurrency, but Labor accused the Conservatives of “looking out for the interests of their wealthy donors.”
The disclosure raised renewed concerns about ministerial interference with supposedly independent regulators. Some critics of the government have argued that it has emphasized the risk of giving ministers the right to overrule regulators, a “recall power” that the government has proposed adding to the Financial Services and Markets Act currently passing through parliament.
The government has now abandoned the plan — to the relief of regulators and many in the city who thought it had gone too far. However, the motion highlighted the need for regulators to have greater democratic accountability and for regulators and government to properly discuss legitimate controversies in public.
There is no doubt that the UK benefits from the remarkable operational independence of industry regulators. But regulators in the industry are so important, it is unrealistic to expect politicians not to step in from time to time, for right or wrong reasons.
Looking at the bigger job-Britain’s exit from the European Union Regulators will have powers, and the new bill rightly seeks to increase their democratic accountability. Their focus will continue to be on consumer protection and financial stability, but they will be given secondary objectives of enhancing international competitiveness, economic growth and net zero compliance.
However, you can imagine situations where regulators set a rule based on a reasonable view of consumer protection and financial stability, but politicians believe other considerations, such as economic growth, should be given more weight.
This is largely what happened in the case of the Solvency II capital reforms, as the government ignored calls for changes from the Prudential Regulatory Authority, which was concerned about protections for policyholders. Sam Woods, the head of the PRA, stuck to his guns and forced the government to reject him publicly rather than agree to a private compromise. Woods has been a vocal critic of ministers’ proposed power to deregulate regulators, which he said would undermine confidence in regulatory independence.
But it may be argued that it would be better, in exceptional circumstances, for organizing ministers to overturn the order in public after giving proper evidence of their decision, rather than behind closed doors. In recent years, there have been many examples, such as peer-to-peer lending, where regulators seem to have succumbed to private pressure from politicians, seriously hurting customers, investors and taxpayers.
In the case of cryptocurrencies, some of the city’s biggest firms have complained that the FCA’s approach has hampered efforts to turn the UK into a hub for distributed ledger technology development. Whether those concerns or the influence of donors drove ministers’ enthusiasm for cryptocurrency, it would be best if significant differences with regulators are discussed publicly.
While there was wary support in town for the proposed summoning force, even supporters were a little nervous about the potential overuse. The fact is that the bill already gives the government the power to give regulators “policy guidance” and to require independent reviews of new rules it disagrees with. So perhaps the power to cancel was an exaggeration.
What is vital is that the new system leads to the government and regulators being more transparent and rigorous in presenting their cases. This will reinforce confidence that regulation is really driven by the broader public interest, rather than those of regulators, politicians or party donors.
To contact the author of this story for comment or news, email David Wighton
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