The Financial Conduct Authority (FCA) has gone six months without registering a crypto firm amid criticism that its tough approach to regulation poses a risk to the UK’s competitiveness in digital assets.
FCA, the ‘City’ (the financial district) watchdog has not approved a crypto firm under anti-money laundering (AMI) and counter-terrorist financing (CTF) rules since the end of February, according to its list of registered businesses.
These controls must be approved by the FCA for companies to provide most crypto-asset services in the UK. Separate figures show the vast majority of firms that apply for registration under the regime fail to pass through, with the regulator recently seeing a drop-off in application volumes.
Since it began supervising the process in January 2020, the FCA has received 356 applications for registration under the AMI and CTF regulations introduced by the government in 2017. However, just 47 (14 per cent) of the 336 applications it has determined have been successful in the 12 months to the start of August, the regulator received just 34 applications.
Of the 29 it considered during this time, 86 per cent failed. More than half (55 per cent) were withdrawn, while the watchdog rejected and refused 21 per cent and 10 per cent respectively. While the FCA’s figures raise questions over corporate governance within the crypto industry – which has long been associated with illicit activity – some argue the regulator could do more to support these companies.
In April 2022, the prime minister at the time, Rishi Sunak, laid out his ambition for the UK to become a “global hub for crypto-asset technology”. But a conservative party MP and chair of the Crypto and Digital Assets All-Party Parliamentary Group, Lisa Cameron, said in April that firms were moving to places like the United Arab Emirates and European Union after becoming “very bogged down” with the FCA’s process.
Other jurisdictions are doing things very quickly, and they are providing a lot more support than the FCA seems to be,” she said. The newly elected Labour government has yet to outline any policy proposals on the area.
An FCA spokesperson said: “We expect firms to be fit and proper and have adequate systems to identify and prevent flows of money from crime. These standards that we hold firms to are essential to help protect people and the integrity of our financial system.” Apart from matters regarding crypto, The Financial Conduct Authority is also dealing with regard to unregulated crowd investment. It has begun a crackdown on crowdfunding investment schemes that see investors diving into unregulated offers.
Odin, a service that helps private companies pool investments, has revealed that the regulator had told it to stop taking on new customers until it changes its operating model.
“The FCA has come to the view that deal syndication on a software platform like Odin’s requires a specific regulatory permission (arranging deals with retail investors) that we do not have,” the company said. “Neither to our knowledge, do any of our primary competitors in the UK.” The UK Crowdfunding Association, which represents regulated investment platforms, said there had been “an alarming rise in the number of founders seeking to raise finance directly from the public via what appear to be unregulated share offers”.
A founding director, Bruce Davis said: “Investments worth potentially millions of pounds are being sought from small investors who run the risk of investing without the protections available via regulated investment platform”. (The writer is our foreign correspondent based in the UK)
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