The odds appear stacked against cryptocurrency firms seeking access to the regulated UK market, if recently disclosed data from the Financial Conduct Authority (FCA) is anything to go by.
Britain’s financial watchdog has determined over 265 applications from crypto-asset companies as of January 2023, 74% of which were outright refused or withdrawn and 11% of which were rejected after consideration, meaning only around one in six were approved.
At first glance, the FCA’s rejection rate appears at odds with Rishi Sunak’s pledge to make Britain “a global hub for cryptoasset technology and investment”.
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But the FCA’s strike rate may be more benign than it seems. Alongside the data, the regulator published extensive guidelines for submitting a decent application, with advice on detailed business plans, risk assessment, the nomination of a money laundering reporting officer (MLRO), blockchain compliance and other policy requirements.
The lesson appears to be: Get your house in order and maybe hire a compliance expert before filing your application.
What is the cryptoasset registrar?
The FCA’s cryptoasset registrar was established in 2020 in order to bring previously unmonitored platforms under amended money laundering, terrorist financing and transfer-of-funds regulations.
Any company facilitating the transfer of token or providing custodian services must register with the FCA.
Successful registrants include CoinJar, Revolut, eToro, Fidelity Digital Assets, Galaxy Digital (TSX-V:GLXY), the Winklevoss-twins-owned Gemini Payments and Copper, which is chaired by former UK chancellor Phillip Hammond.
Established cryptocurrency exchanges such as Coinbase can register as an authorised electronic money institution instead.
Unregistered cryptoasset companies operating in the UK are subject to criminal repercussions.
Despite Britain’s regulatory advances in the cryptocurrency sector, there remain some significant blind spots in terms of customer protection.
As of today, cryptocurrency companies are not covered by the Financial Services Compensation Scheme, which provides deposit insurance for customers of authorised financial services firms.
Due to the lack of statutory protection, engaging with cryptocurrency platforms remains a high-risk affair.