UK Gives Regulatory Approval to Only 15% of Crypto Firms
Around the world, governments are taking cryptocurrency more seriously and this has meant giving crypto firms the chance to enter regulators’ good books by becoming formally-registered entities. After many crypto firms have operated on the fringes for years, several jurisdictions now have a formal process for them to apply for licenses to operate.
But the fact that firms can apply does not necessarily mean that they will be successful. Case in point, the United Kingdom’s Financial Conduct Authority (FCA) recently revealed that only 41 out of the 300 crypto firms that applied to it for a license have been approved.
Reasons for the Low Approval Rate
While on paper, the chance for firms to apply for regulatory approval seems like a good thing, a 15% success rate is quite discouraging. But the FCA has given some insight into why this might be with a post titled ‘Cryptoasset AML/CTF regime: feedback on good and poor quality applications’. In it, the FCA broke down its experiences with applications thus far.
“The FCA has been the anti-money laundering and counter-terrorist financing (AML/CTF) supervisor of UK cryptoasset businesses since 10 January 2020. Since then, we have received over 300 applications for registration under the MLRs and determined over 260 as of January 2023. Of the applications we determined, we approved and registered 41 (15%), 195 (74%) were either refused or withdrew their application and we rejected 29 (11%) submissions,” it said.
It is quite interesting to note that a bulk of these firms that did not get approval were not necessarily rejected but might have just withdrawn their applications instead. The wording of the statement also suggests that some of the applications were not of good quality.
The statement went on to highlight some of the steps that firms should take before during and after applying for a license. In the section regarding what to do during applications, it was noted that firms will have to be clear about the compliance measures they plan to undertake.
“Applicants should also not submit business plans that focus only on the business model and commercial aspects without any description of its compliance oversight, risk mitigation and financial controls, especially for its cryptoasset holdings,” it says.
An example of this was whether or not the firm would be pulling together customers’ funds with its own or planning to keep them separate. This is a significant issue as several project breakdowns such as the FTX affair were partially caused by the co-mingling of customer and corporate funds and as such, this sort of clarification would be needed.
Other information that the FCA detailed in the report included a comprehensive description of products and services, risk assessment and management, and its policies, systems and controls.
The Significance of This
While it is unfortunate that so few firms have gotten the regulatory approval that they need, it is helpful that the FCA is explicitly stating the requirements for approval and keeping the industry in check.