Kim Kardashian and Big Tech slapped for spruiking craptocurrency – and holding back useful crypto
Chair of UK Financial Conduct Authority says more regulation will help innovation to flourish
Big Tech and the likes of Kim Kardashian need to be named and shamed so that innovative digital tokens can flourish, according to Charles Randell, chair of the UKs Financial Conduct Authority (FCA) and Payments Systems Regulator (PSR).
In a keynote speech delivered on Monday night at the Cambridge International Symposium on Economic Crime, Randell praised the likes of Google for making it hard to advertise unregulated financial products. But he thinks other online actors need to help, along with governments.
"We now need other online platforms – Facebook, Microsoft, Twitter, TikTok – to do the right thing too. And we think that a permanent and consistent solution requires legislation.
"Consumer awareness requires online platforms to step up. They can give advice about scams in the moment when consumers are about to make bad decisions. We'll work with online platforms who want to protect both consumers and their own brands – and we'll call out those who aren't playing their part and are destroying the trust of their users."
Then Randell demonstrated how such a call-out might work, by sharing an observation about Kim Kardashian.
"When she was recently paid to ask her 250 million Instagram followers to speculate on crypto tokens by 'joining the Ethereum Max Community', it may have been the financial promotion with the single biggest audience reach in history," Randell said, according to a transcript of the speech circulated before delivery.
There is no shortage of people who have lost savings by … listening to their favourite influencers
"In line with Instagram's rules, she disclosed that this was an #AD. But she didn't have to disclose that Ethereum Max (not to be confused with Ethereum) was a speculative digital token created a month before by unknown developers – one of hundreds of such tokens that fill the crypto-exchanges."
Randell said he doesn't know if Ethereum Max is a scam. But he said some social media influencers "are routinely paid by scammers to help them pump and dump new tokens on the back of pure speculation. Some influencers promote coins that turn out simply not to exist at all."
Despite such coins being a prima facie risky investment, "the hype around them generates a powerful fear of missing out from some consumers who may have little understanding of their risks.
"There is no shortage of stories of people who have lost savings by being lured into the cryptobubble with delusions of quick riches, sometimes after listening to their favourite influencers, ready to betray their fans' trust for a fee.
"To be clear: these tokens are not regulated by the FCA," he said. "They are not covered by the Financial Services Compensation Scheme. If you buy them, you should be prepared to lose all your money."
Yet Randell noted that over 2.3 million investors in the UK hold unregulated tokens, and plenty used credit to pay for them.
He therefore called for a new regulation regime to protect consumers – but warned that it is only feasible to regulate entities that the FCA and other authorities can police.
"We are not going to award FCA registration or authorisation to businesses which won't explain basic issues, such as who is responsible for key functions or how they are organised. That would be token regulation in the worst sense," he said, pointing out that regulating those who don't make themselves accountable would create a non-useful "halo effect" for very questionable assets.
- Bank of England ponders minting 'Britcoin' to sit alongside the Pound
- Bitcoin doomed as a payment system and its novelty will fade, says Federal Reserve Board of Governors member
- Australia, Malaysia, Singapore, South Africa test cross-border crypto-payments
- As China trials its Digital Yuan with a giveaway, seven big central banks outline response
Entities that put themselves beyond the risk of regulation invite international collaboration to make them accountable, he added, before approvingly noting that such efforts are under way.
Randell concluded his speech by saying he thinks legislators have three issues to consider: making it harder for digital tokens to be used for financial crime; supporting useful innovation; and whether consumers should be free to buy unregulated, purely speculative tokens and to take the responsibility for their decisions to do so.
While legislators sort that lot out, he wants two short-term measures.
One is a requirement that all advertisements for crypto assets include warnings about their highly speculative nature.
"Since these promotions are nearly all online and often made by unidentifiable promoters in other jurisdictions, it's imperative that any regulations in this area cover paid-for advertising on online platforms," Randell said.
The other is to "ensure that speculative digital tokens attract a full capital charge for banks.
"It's essential that the boards of FCA-authorised firms can show how they have addressed the risks that unregulated activities in relation to digital tokens can pose to those firms – to both their conduct, and their prudential soundness,” he said. Doing so should, in his view, insulate them from unregulated entities that go bad.