The HM Treasury has recently outlined a package of initiatives aimed at putting Great Britain at the forefront of crypto technology and innovation. However, it now appears that this crypto evolution will be slowed as many firms struggle to meet the FCA’s regulatory requirements.
Whilst not all aspects of the crypto market are currently regulated, Firms are required to comply with the UK’s money laundering laws. Since January 2020, crypto service providers have been required under the Fifth Anti-Money Laundering Directive to register with the FCA and gain authorisation that their anti-money laundering systems are compliant.
Since its introduction however, only 13% of crypto service providers who have applied for authorisation have been successful. Despite 273 applications being made to the FCA, only 35 have currently been approved; four in 2020, 25 in 2021 and six this year. There is some debate as to what is causing the FCA’s low rate of authorisation, with some suggesting that many firms are making incomplete applications which are not ready whilst others argue that the framework the FCA provides lacks clarity on what a ‘complete’ application should look like.
A compliance consultancy has helped to shed some light on the debate via a Freedom of Information Act request, which showed that four applications were refused for not meeting the required standards, 21 applications were rejected for not providing enough information and the rest were withdrawn by the candidates themselves. It is important to note however, that applications are often withdrawn following the FCA informing the candidate that their application does not meet the requirements and is therefore likely to be rejected.
Nevertheless, the low authorisation rate does not appear to be dissuading firms from attempting to enter the market, with 74 applications still pending as of May this year. Nor does it appear to be altering HM Treasury’s stance towards the crypto market, with its recent announcement of its plans to legislate certain stablecoins. It will therefore be interesting to see how the crypto market develops within the UK going forwards as the FCA attempts to regulate a new industry.
