The Financial Conduct Authority (FCA), known for being critical of digital assets, took a different approach at its first CryptoSprint, held earlier this month.
Over the course of two days, participants worked in mixed teams to explore challenges facing the crypto industry, including how the FCA, the U.K.'s financial regulator, can support innovation and balance it with standards that protect consumers, the FCA said on its website.
The CryptoSprint examined how to manage information disclosure related to crypto asset issuance, regulatory obligations and custody requirements. Many digital asset company executives told CoinDesk they wanted a collaborative approach that allowed for innovation. The FCA's CryptoSprint gave some of the participants a sense that this is indeed possible.
"I think the way the FCA has engaged with the industry at this early stage is a great thing because it's a sign that they are listening, so hopefully we can actually get regulations that are fair to the industry," said Michael Johnson, head of compliance at U.K. crypto wallet provider Zumo.
The FCA
The FCA echoed the enthusiasm.
"The last two days have been extremely positive, with participants working closely together to figure out what future policy might look like," an FCA spokesperson said in a statement to CoinDesk. "It was striking that the general view on the future regulation of the crypto market is in line with ours, with consumer protection and market integrity key to building trust in this evolving sector."
At CryptoSprint, the FCA heard from a range of players within the digital asset sector, including chief executives, heads of compliance, academics and lawyers, Johnson told CoinDesk. The event had more than 600 registrations and 96 attendees, in addition to FCA staff who moderated the event, Johnson said.
FCA Chief Executive Nikhil Rathi, the head of banking at the U.K. Treasury, David Raw, and Jessica Rusu, FCA's chief data, information and intelligence officer, were all present at the event, said Ian Taylor, a member of Crypto UK, a local trade organization. Those attendees showed that the FCA was taking the event seriously, Taylor said.
The crypto experts who attended the event had to break down problem sets that the regulator was addressing into themes and research them before speaking on various topics. FCA staff were positioned to take notes.
Global approach
International companies attended, including a representative from San Francisco-based exchange Kraken.
"It was reassuring to participate in well-articulated, open and frank policy discussions with FCA," said Curtis Ting, Kraken's managing director for Europe, the Middle East and Africa. "We were particularly encouraged by the CryptoSprint's fundamental recognition that offshore firms not subject to U.K. regulation pose a challenge to the U.K.'s ambition to become a world-class fintech center."
Participants agreed that a global effort to coordinate regulation worldwide would help the digital asset sector mature and grow in terms of adoption, Sabrina Wilson, chief operating officer at Copper, a custody solutions provider under the FCA's provisional registration regime, said in a statement.
According to CryptoUK's Taylor, about half of CryptoSprint participants believe the regulator has not listened to the industry in the past. However, that doesn't mean it will ignore cryptocurrency representatives now.
The rest of the attendees believe that the FCA's move was positive, Taylor said.
"Personally, I can only go by my past experience. The FCA has not really listened to the industry. However, the positive is that it is willing to learn," Taylor said.
The FCA set up a provisional registration regime (TRR) to allow crypto companies without full registration to continue operating while its licensing regime took effect. More than 100 companies applied for registration, but currently only five companies are on the TRR list, while 34 have full licensing.
The registration system has been difficult for the industry from an anti-money laundering perspective, Zumo's Johnson said.
"If we want to protect U.K. customers, how can we encourage people to get regulated in the U.K. so they can better achieve their own goals?" said Johnson.
What the industry wants
The U.K. announced in April that it will work on a new crypto regulatory package and has plans to regulate stablecoins. The UK already has a handbook on how HM Revenue and Customs, the government's tax agency, will tax cryptocurrencies.
A self-regulatory organization, where a trade organization is given the authority to regulate and manage the industry, is a "common narrative" among industry participants, but the FCA has no appetite for it, Taylor said.
There is an interest in incremental regulation, Johnson said.
"If you do it in small chunks, it means the industry can actually manage those chunks and move fluidly," Johnson said.
The FCA made it clear that the process was an information-gathering exercise that would help inform policy, but the suggestions participants made would not necessarily be implemented, Johnson said.
The regulator will also hold a virtual sprint for applicants who were unable to attend. Johnson said the FCA has expressed a desire to engage with the industry on a regular basis in the coming months.
An FCA spokesperson told CoinDesk that the FCA will release more information about the virtual sprint this summer.