Global responses to digital asset regulation

Introduction

In the run up to Easter, while most of you were planning egg hunts or family gatherings, the regulators and market participants were closely watching the global dynamics of tariffs, and the impact on trading.

The long Easter weekend has given us time to reflect on the resiliency of markets, the role that financial services plays in supporting global economies, and the ties that bind international markets together.  

In the last 12 months, technological advancements have profoundly transformed the financial services sector, offering innovation and growth of new business models.  

Artificial intelligence (AI) has become central to this evolution – with financial institutions leveraging AI to deliver operating efficiencies, improving fraud detection as well as enhancing customer interactions.

The UK continues to be world-leading in commercial insurance, derivatives, debt issuance, foreign exchange and commodities trading.

Supporting all this, we have a world-class outcomes-based regulatory regime.

FCA strategy

The FCA, with its new 5-year strategy launched a few weeks ago, is focused on deepening trust, rebalancing risks, and supporting economic growth.

The regulators serve as a guardian of stability in the financial system. We ensure markets function efficiently, offering a restoration of confidence when markets are shaken.

Entrepreneurs are looking for predictability, regulatory certainty, and a pro-innovation environment.  

The FCA and UK leadership are united and purpose-driven in guiding us towards economic growth, and providing the predictability, certainty, and pro-innovation environment that sustains our UK businesses.

Growth and Innovation

The UK offers significant strategic advantages.  

A business-friendly environment, a strong rule of law, and good collaboration across Government, Parliament, regulators, industry and consumers, to create a pro-innovation environment.  

Our enviable record on financial innovation speaks volumes – leading Europe in fintechs, with 3 times more than Germany or France, including dozens of unicorns and a healthy pipeline of ‘soonicorns’.  

These are the strong foundations upon which business decisions are made.

Our Regulatory Sandbox[1] was a world-first in providing a virtual environment for innovators to experiment safely, and has since been replicated by nearly 100 regulators around the world.  

We built on that with our permanent Digital Sandbox[2] in 2023, offering synthetic data assets to firms for free, and this year, unveiling the AI Lab[3].

We've supported over 60 firms with distributed ledger technology (DLT)-based innovations in our Regulatory Sandbox, and more than 80 through Innovation Pathways[4].  

Our Digital Securities Sandbox[5] is now open for applications, giving firms the opportunity to explore new tech in traditional financial markets. And this year, to ensure firm success, we are providing a dedicated case officer to all Sandbox firms.

But does it deliver growth, you ask?  

Independent studies found that over 90% of firms that engage with our Innovation direct support and advice services become authorised. And whilst the success rate for fintech firms can be mixed, 80% of Regulatory Sandbox firms are still in operation.  

FCA Sandbox firms are 50% more likely to raise funding than their peers and on average raise 15% more in investment. Our Sandboxes make a tangible difference, allowing us to help good ideas move forward with confidence. 

Digital assets regulatory landscape

Innovation in payments, digital assets, stablecoin, and crypto is moving at lightning pace, particularly in the US.

Many of you have read TheCityUK’s new report, ‘The digitalisation of UK capital markets’[6], which calls for urgency in pressing ahead with UK opportunities for DLT and tokenisation for the UK FMI (financial market infrastructures) and bond market.

We’ve been working on our approach, and last autumn published a roadmap for developing a UK crypto regime, following the Government's approach to crypto regulation.  

The FCA has leveraged existing rules (the Financial Services and Markets Act 2000) to encourage the industry to develop strong standards and help consumers protect themselves.

During the first year of our financial promotion regime, we took down over 900 crypto-related scam websites and issued 1,700 consumer alerts.  

We've been assertive in using our powers to keep firms out of the market where they are unable to meet the minimum standards.  

And we will continue to work closely with stakeholders across the system to strike the right balance between innovation and consumer protection.

Crypto is an inherently global sector, and we must be alive to what other international jurisdictions are doing and learn from them.  

We are playing a leading role in the crypto workstreams of IOSCO (the International Organization of Securities Commissions), the FSB (Financial Stability Board), and FATF (the Financial Action Task Force).  

By doing so, we ensure our domestic regulation remains competitive while contributing to international regulatory standards for digital assets across the world.

Just as digital assets offer innovations in markets, Open Banking and Open Finance offer opportunities for consumer choice, better competition, and growth in our economy.  

The FCA and PSR (Payment Systems Regulator) are working closely together to build on the UK’s track record as a global leader in the payments space.

Over 11 million people are already using Open Banking. But we see so much potential to make payments faster, easier, and cheaper.  

For example, variable recurring payments give people more control over their regular payments, so it's a priority for us to bring that to consumers.  

We working with industry on a sustainable commercial model for Open Banking, opening up financial services data beyond payment accounts, to unlock benefits for economic growth and give consumers more control over their financial data, enabling more personalised services and improving financial inclusion.

On the international front, we’re working with the Bank for International Settlements on ‘Project Aperta’, to develop and test cross-border data sharing. A world-first that could have a transformational impact in reducing friction and costs in global cross-border finance.

AI could be a game-changer for economic growth, and we've committed to playing a leading role in the Government's AI Action Plan.  

Our joint survey with the Bank of England showed that 75% of firms already used some form of AI, and 10% more were planning to adopt it.  

Our existing outcomes-based regulation, including the Consumer Duty[7] and the SM&CR (Senior Managers and Certification Regime)[8], gives us the agility and flexibility needed to adapt to market developments.

Through our AI Lab, we are exploring how these technologies are being used and how we, as regulators, can best support safe adoption.

AI Lab offers firms a supercharged Sandbox[9], capable of testing GenAI (Generative Artificial Intelligence). We are 'open for AI business' and continue to take an evidence-led approach to inform our understanding of the risks.

Regulation for growth

We are acutely aware of the impact that good regulation can have on UK growth and competitiveness.  

As we work to support the Government's growth mission, we will take a balanced and pragmatic approach.  

Pro-innovation and pro-growth. Predictable and stable for businesses, making it easier and more attractive to do business on our shores.

We have undertaken ambitious reforms to our wholesale markets.  

Last year we overhauled listing rules[10]. This year we are forging on with a new prospectus regime and a new market for trading private shares – Private Intermittent Securities and Capital Exchange System (PISCES)[11] – and today we have announced a further 70% cut in capital rules red tape[12]. This will streamline the rule on the types of funds investment firms that must hold capital for periods of stress.

We have launched our pre-application support service (PASS)[13] to help firms align with regulatory expectations before submitting formal applications for authorisation. This has now been extended to all wholesale, payments and crypto firms – to help more firms navigate the process quickly and effectively.

Our Early and High Growth Oversight[14] function has supported more than 450 newly authorised firms to understand their obligations and meet our regulatory standards, and we are introducing 50% more dedicated supervisors this year.

All these changes aim to make the UK a more attractive and competitive destination to do business.  

We are also trying to be more ‘user-friendly’.  

We are continuing to digitise and simplifying our Authorisation forms – based on user research and testing. We are decommissioning legacy data returns to reduce firm reporting burden. And we’re streamlining the Handbook and moving towards a machine-readable version.  

We’ve launched our new digital portal, ‘My FCA’[15] to submit data, pay fees, and manage core interactions with us all in one place.  

In the supervision hub, we are using predictive AI to assist our contact handlers with real-time knowledge, and an AI agent voice bot to direct the consumer to the correct agency (Financial Ombudsman Service, Financial Services Compensation Scheme, or FCA) on first contact, using conversational AI.

What does all this mean?  

A smarter regulator, enabled by smarter systems.  

Sending a clear signal: that we understand what businesses need in a global, digital, data-driven world, and that we’re shaping a regulatory system that reflects that reality.

Conclusion

So as we conclude TheCityUK international conference, I’d like to leave you with 3 thoughts, a trinity perhaps:

• The UK is the best place in the world to scale and grow a business.
• The FCA is open for business, including AI business – our AI Lab is helping firms adopt AI safely, giving our firms a competitive advantage.
• Our proportionate and agile approach to regulation is a game-changer.

Thank you, and let's continue to drive innovation, international collaboration, and growth together.