In a recent report by the National Audit Office (NAO), it has been revealed that the Financial Conduct Authority (FCA) struggled to meet its timelines for registering crypto-asset firms under money laundering regulations in 2021, citing a shortage of skilled personnel in the cryptocurrency domain. The report highlights the ongoing difficulty faced by the regulatory body in recruiting and retaining staff with expertise in crypto-related activities.
According to the NAO report, the FCA dealt with more than 1,400 cases related to unauthorised crypto-asset activity. The surge in crypto-asset scams was significant, with reported cases increasing from over 3,150 in 2020 to more than 6,300 in 2021. The first half of 2022 alone witnessed more than 3,900 reported cases, indicating a growing challenge for the FCA.
One of the notable findings of the report is the considerable delay between the FCA identifying issues and taking necessary actions. Despite engaging with unregistered firms and mandating compliance with anti-money laundering regulations since January 2020, the FCA did not initiate enforcement actions against illegal operators of crypto ATMs until February 2023.
The report also points out instances where the FCA requires additional powers to act, such as seeking parliamentary approval before imposing conduct standards on Buy Now Pay Later credit providers.
To adapt to its expanding responsibilities, the FCA has increased overall staffing by 16% and invested £317 million in a two-year change management program. Planned initiatives include upgrading its ‘data lake,’ a central repository for all FCA data, and creating a ‘single view’ platform for frontline staff to access key information on firm performance.
The NAO’s recommendations include urging the FCA to ensure operational processes can manage the scale of ongoing changes and collaborating with HM Treasury and other stakeholders to review the effectiveness of new accountability arrangements. The report also suggests that by autumn 2024, the FCA should provide greater clarity on its performance through the delivery of a core set of performance metrics.
Gareth Davies, head of the NAO, emphasises the importance of the FCA developing a long-term workforce plan to maintain the necessary expertise. He states, “The FCA is undergoing significant reform, responding to changes in the financial services regulatory framework and making operational changes intended to improve performance. The FCA must complete its work on optimising its use of data, assessing whether it is achieving the outcomes it intends and whether it is able to direct resources to where they can have the most impact. It must also be clear about which of the long lists of activities it is monitoring internally are its priorities.”