The Character may hold a torch.
Either you enable “Cast Shadows” and get ugly dynamic Shadows (always sharp, no matter the distance)
or you disable “Cast Shadows” and simply go without shadows.
It would be great to have Capsule Shadows a per Light setting.
(or soft shadows for Skeletal Meshes in General :P)
Edit: Capsule Shadows in Indirect Lighting use the Lighting Cache to choose the Direction they are casted, a dynamic light does not change the direction of the Soft shadows.