Terra Luna crash shows need for ‘non-negotiables’ in crypto regulation, says FCA official

The Terra Luna crash this year caused investors to lose significant amounts of money and shows why “non-negotiables” in crypto regulation are needed, the FCA said.

“When we look at the Terra Luna collapse, (the harm caused by it) is some people’s life savings,” said Richard Fox, Director of International at the FCA, at a panel during Fintech Week London today, mentioning that it was not far-fetched to say, “it was a threat to life to some of the people there.”

He said it was important to set the regulatory “non-negotiables that don’t let the Terra Lunas happen,” emphasising the importance of regulation and consumer protection. 

The collapse of Terra’s UST stablecoin and its sister cryptocurrency Luna in May this year wiped out much of their value and led a sharp crypto sell off that saw the prices of major cryptocurrencies plummet. 

Investors lost a substantial amount of money with the crypto market cap down from $3 trillion in November last year to less than $1 trillion currently.

“We will be tough. Where we think we need to draw a robust line we will do that,” Fox said. “But it’s not one-size fits all. We are open minded.”

He said the EU’s MiCA law, agreed a few weeks ago, covers all the key areas the UK was expected to as well, such as disclosure and financial crime. He said the UK’s approach to crypto regulation would have lots of similarities as well as differences to MiCA. 

Fox praised the EU for moving early on crypto regulation and said the UK’s phased approach to regulation would be a learning experience from that.  

Also present at the panel was Tom Duff Gordon, VP of International Policy at Coinbase, who said that a “sensible layer of regulation is really important.” He said “flexible, dynamic” regulation would be beneficial. 

A Treasury spokesperson has said that the UK’s upcoming Financial Services and Markets Bill would set up a framework to regulate stablecoins, with consultations on a “world-leading regime” for the rest of the crypto market due later in the year.

With PM Boris Johnson stepping down and the unprecedented resignations of over dozens of ministers from the government last week, it remains to be seen what the final legislation will cover and what further consultations on crypto will look like.