City Week 2023: Day 2 - Digital Assets

While cryptocurrencies have dominated recent headlines, they are a small part of the world of digital assets. To fully realise the potential of the emerging digital asset ecosystem, a new international, regulatory regime needs to be put in place so that institutional investors can participate without undue risk and drive growth in this innovative space. Day Two looks at this in depth.

The FCA Investigations and Enforcement Summit, taking place on the 1st June, is a highly regarded annual event addressing the latest developments in the FCA’s enforcement agenda. This year’s event covers a number of new issues which have an impact on the risk of an investigation or enforcement action. These include the rise in online scams, cyber frauds and crypto risks including the risk to consumers and the risk of crypto being used for money-laundering, evading sanctions or other illicit purposes. With the cost of living crisis placing pressure on consumers, the focus will also be on consumer conduct and recent enforcement action in relation to customer communications and vulnerable customers.

Fintech is rapidly transforming financial markets, whether in the form of fast-growing fintech companies or in the use of technology by incumbent institutions. It is a permanent technological revolution at the heart of finance, creating new business models, new products and new delivery channels.

Despite the significant drop in crypto's market capitalisation and some well-publicised coin failures, traditional financial institutions - banks, asset managers, insurers and others - are continuing to develop their digital asset and crypto strategies, since there is a widespread recognition that crypto, digital assets and blockchain are here to stay and offer a significant range of potential applications. 

The size of the cryptoasset market has grown exponentially in the last year, from just under $800 billion to $2.3 trillion today, and up from just $16 billion 5 years ago. The vast majority (95%) of the market comprises unregulated unbacked tokens, which regulators are concerned about from a financial stability standpoint. Although $2.3 trillion needs to be seen in the context of the $250 trillion global financial system, in 2008 the sub-prime market was valued at around $1.2 trillion, and its collapse had catastrophic consequences.