Speculative tokens are in the spotlight of a recent speech by Charles Randell, Chair of the Financial Conduct Authority, made on September 6, 2021. Given the rising hype of speculative tokens spurred on by social media’s online influencers, for example, the public is lured by the “delusions of quick riches”. Unfortunately, these consumers have little understanding of the risks involved and falsely believe they are protected by government programmes if they lose money.
Should the promotion and exchange of speculative tokens be regulated? Randell, explains the challenges and concerns of regulating such a market. Yet, he also discusses the regulatory potential to allow the underlying technology of digital tokens to benefit consumers as a means of payment and investments.
Randell raises three key issues that should be addressed by legislators:
How to make it harder for digital tokens to be used for financial crime
How to support useful innovation
The extent to which consumers should be free to buy unregulated, purely speculative tokens and to take the responsibility for their decisions to do so
In the short term, Randell puts forward two cases to reduce the potential harm to consumers by speculative tokens. First, require that crypto asset promotions clearly highlight the risks and ensure that they do not imply that the token is regulated. Second, apply a full capital charge for banks on speculative digital tokens.
Striking the right balance is the recurring theme throughout the speech. The regulatory goal summarized by Randell is “fostering innovation while ensuring investor protection.