At an event in London today (25 April), Sarah Pritchard, executive director of markets and international at the FCA, honed in on the risks of the rise of crypto, and pointed to the failure of FTX in November 2022 as a warning of the dangers.
She said: "The take up of crypto is on the rise year-on-year. That means more consumers need protecting from the potential harms. And with more consumers and investors piling in, the risks also grow exponentially in our interconnected systems.
"That is why things have to change. As crypto matures as an industry, so must the firms that offer it and the rules that underpin it."
Treasury sets out plans to regulate crypto
The FCA's current remit over crypto is limited to ensuring crypto firms that operate in the UK comply with anti-money laundering and counter-terrorism legislation.
Hinting the regulator's hands are tied by politicians, Pritchard said: "Only when the government legislates will we have more powers to regulate crypto."
One area awaiting legislation is expanding the FCA's regulation of financial promotions to include cryptocurrency.
The FCA will expect crypto promotions to be treated on a par with other high-risk investments and failure to comply will be a criminal offence. Like other high risk investments, consumers will be given a cooling off period to decide whether they want to invest their money.
These regulations will apply to all firms marketing cryptoassets to UK consumers, regardless of whether the firm, or celebrity influencer, is based overseas or what technology is used to make the promotion.
85% of crypto firms fail to meet FCA standards
In addition to individual consumers losing money when crypto firms fail, or the price of the digital currency nosedives, crypto also has a high risk of exploitation by serious organised criminals and is used in ransomware attacks and other scams, Pritchard said.
"There are bad user cases as well as good. It is important that this level of risk is understood and that future regulatory regimes strike an appropriate balance," she told the event.
"We need a conversation about the risks of crypto and the appetite for not just wins, but losses.
"Do consumers appreciate the risks of the firms they are dealing with, the investments they are making? Do they, or policymakers or institutional investors, have an appetite for that risk, even if it entails losing it all?
"Regulation may be able to mitigate some of the harm, but it will not be able to stop all risk, in particular risk of financial loss."