Cryptocurrency Firms in Line for Exemption from New Consumer Duty Rules FCA Announces Plans

The Financial Conduct Authority (FCA) has confirmed that cryptocurrency firms will be exempt from the key consumer protection rules found within its new Consumer Duty framework when the regulator extends its oversight of the sector next year.

The newly introduced duty, which came into force in 2023, requires regulated firms to go beyond minimal rule adherence and instead deliver favourable outcomes for retail clients. Despite this, the FCA has stated that it will not immediately apply the new consumer obligations to cryptoasset businesses, even as it expands regulatory coverage in the upcoming year.

The FCA already governs crypto firms regarding financial promotions and anti-financial crime regulations. However, with new regulatory activities set to take effect, the question of appropriate consumer protection has returned to the spotlight. In its latest consultation, the FCA indicated that it does not plan to apply the Consumer Duty to any regulated cryptoasset activities during this period. Instead, it seeks feedback on whether this position should change in the future or if bespoke rules for the sector would better address the unique challenges it presents.

The regulator explained its position by pointing to the complexities cryptoasset firms may face in interpreting the duty and highlighted the potential need for sector-specific legislation. The FCA is also evaluating whether cryptoasset providers ought to offer consumers access to the Financial Ombudsman Service for grievances, as well as contemplating potential exemptions.

This announcement coincides with the United States taking steps to support the crypto industry and the UK government applying significant pressure on regulators to spur innovation and growth. The FCA referenced evidence of poor conduct and widespread rule-breaking within the cryptoasset market, which historically has contributed to consumer detriment. It reinforced the necessity for a robust conduct regime underpinning market integrity and consumer protection, whilst also nurturing a fertile environment for innovation.

The FCA’s executive director for payments and digital finance, David Geale, has cautioned against simply transferring traditional finance regulations onto crypto assets. He advocates for a tailored approach that considers the nuances of this developing market, rather than imposing a one-size-fits-all regulatory model.