UK regulator proposes exempting crypto firms from 'integrity' and other rules

By Kirstin Ridley

LONDON (Reuters) -Crypto firms in Britain could be exempted from rules that ensure financial services companies act with integrity and in the interests of customers, under new proposals outlined by the Financial Conduct Authority on Wednesday.

The move comes after Britain signalled in April it would cooperate on the best approach towards digital assets with the United States, which has embraced the crypto industry and vowed to roll back regulatory curbs under President Donald Trump.

Publishing a consultation on minimum standards designed to allow fast-growing crypto firms to compete internationally, Britain's financial regulator is suggesting waiving four of its principles for crypto asset trading platforms.

These include that firms must conduct their business with integrity, with skill, care and diligence, that they pay due regard to customer interests and take reasonable care to ensure advice and discretionary decisions for customers are suitable.

"We want to develop a sustainable and competitive crypto sector – balancing innovation, market integrity and trust," said David Geale, the FCA's executive director of payments and digital finance.

"Our proposals won't remove the risks of investing in crypto, but they will help firms meet common standards so consumers have a better idea of what to expect."  

Although crypto assets are generally high-risk and volatile, customers should still be protected from poor business practices, the regulator said.

The FCA is also proposing tougher rules in areas such as operational risk. A $1.5 billion hack on Dubai-headquartered cryptocurrency exchange Bybit in February underlined the need for "strong operational resilience controls", it said.

The regulator is seeking feedback on whether the consumer duty, which requires firms to put their customers first, and customer access to the Financial Ombudsman Service for compensation should apply for crypto asset firms.

Charles Kerrigan, a partner and AI specialist at law firm CMS, said it was inevitable that the consumer duty would apply once crypto assets are brought within the regulatory framework.

Around 12% of British adults own or have owned cryptocurrencies such as bitcoin or ethereum, up from 4% in 2021, the government has said.

The deadline for feedback on the consultation is November 12.

(Reporting by Kirstin Ridley; Editing by Tommy Reggiori Wilkes, Kirsten Donovan)