A shortage of skilled professionals in the cryptocurrency sector led the Financial Conduct Authority (FCA) to experience delays in registering crypto-asset firms under money laundering regulations in 2021. This issue persists as the FCA continues to struggle with recruiting and retaining staff with the necessary expertise, according to a report from the National Audit Office (NAO).
The regulator informed the NAO that it had addressed over 1,400 cases linked to unauthorized crypto-asset activities. In 2020, more than 3,150 crypto-asset scams were reported, a figure that surged to over 6,300 in 2021, and surpassed 3,900 in the first half of 2022.
The NAO report highlighted that there can be significant delays between the FCA identifying an issue and taking action. For example, although the FCA required compliance with anti-money laundering regulations and engaged with unregistered firms starting in January 2020, it did not take enforcement action against illegal operators of crypto ATMs until February 2023. Additionally, the FCA requires additional legislative powers from Parliament to impose conduct standards on Buy Now Pay Later credit providers.
In response to a broader mandate, the financial services watchdog has increased its staffing by 16% and invested £317 million in a two-year change management program. Upcoming initiatives include updating its ‘data lake’ to enhance data sharing across the organization and establishing a ‘single view’ platform for frontline staff to access critical information on firm performance.
The NAO’s recommendations urge the FCA to strengthen its operational processes to effectively manage ongoing changes and collaborate with HM Treasury and other stakeholders to evaluate the efficacy of new accountability frameworks. By autumn 2024, the FCA is advised to provide stakeholders with clearer insight into its performance through a defined set of performance metrics.
Gareth Davies, head of the NAO, emphasizes the need for the FCA to build on its ongoing efforts to create a long-term workforce strategy that ensures the maintenance of essential expertise. He notes that the FCA is undergoing considerable reform in response to changes in the financial services regulatory landscape and is implementing operational adjustments meant to enhance its performance. The FCA must focus on optimizing its data utilization, evaluating whether it is achieving intended outcomes, and ensuring resources are directed to areas with the greatest impact, while also clarifying its internal monitoring priorities.