Syed Rahman considers the implications of the situation.
The Financial Conduct Authority (FCA) has let it be known it has not formally approved any crypto businesses in six months.
According to the regulator’s registry, the last entity it registered was Portofino Technologies in February this year.
The registry also shows that the 12 months to August 1 saw the FCA receive 34 applications for anti-money laundering and counter-terrorism financing (AML-CTF) registration under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. Of these, only four were successful and 16 withdrew their applications before they could be approved or denied.
For those who bought into the then-government’s 2022 pledge to make the UK a global cryptoasset technology hub, these figures must make difficult reading.
As firms have to register with the FCA if they want to offer services such as crypto trading or providing wallets, the lack of registrations can be seen as a blow to the UK’s attempts to put itself at the forefront of such an evolving marketplace.
Criticism
There has been criticism that the FCA’s enforcement of rules relating to crypto means that many in the sector have found the registration process to be confusing and time consuming; especially those aspects that relate to marketing to consumers. It is an argument that has arguably been strengthened by the fact that Binance and PayPal have suspended crypto services in the UK – and each has blamed the FCA’s rules for their decision.
A recently-published FCA report remarked on how well some crypto firms had managed to comply with the registration rules, which came into effect in October last year. Yet the FCA has also made it clear that its low rate of registrations is due to the fact that most crypto firms fail to meet its anti-money laundering standards. Whether these two factors can be reconciled remains to be seen.
Importance
While the FCA has come under scrutiny for the nature of its registration requirements, it has responded by stressing the importance of firms seeking registration having robust AML measures in place. But while this is understandable, this does not deal with the range of complaints the FCA has faced; particularly in relation to the stringent regulation relating to financial promotions.
It is unclear whether the FCA is deaf to these concerns or simply chooses not to act on them. What is clear, however, is that the current situation is not helping the crypto sector.
While it is no easy feat to implement robust regulations that protect consumers and deter criminal activities while also promoting activity in the sector, the current registration requirements are setting the bar for entry very high. If the crypto service provider market is not made more easily accessible, there is the serious prospect of many entities being deterred from operating in the UK.
As it stands, only those with deep pockets and access to specialist, expert advice stand the best chance of being registered. Worryingly, if the data is anything to go by, many entities simply do not have the appetite to pursue registration.
