Crypto companies wanting to operate in the U.K. have until Thursday to receive the approval of financial watchdog Financial Conduct Authority (FCA). So far, just 33 have passed the regulator’s checks.
More than 100 firms applied for registration after the FCA introduced a temporary scheme in December 2020, having become the country’s anti-money laundering and counter-terrorism financing supervisor for the crypto industry at the beginning of the year. Some 60 have either been refused permanent registration or withdrawn their applications.
The outlook for the 13 remaining companies in the Temporary Registration Regime (TRR) was muddied on Wednesday when the FCA said it was extending the March 31 deadline for “a small number of firms where it is strictly necessary to continue to have temporary registration." It didn’t name the companies, and didn’t say how long the extension would last.
Among those awaiting an outcome are Copper, a provider of crypto services for institutions; Revolut, a fintech company with a $33 billion valuation that offers cryptocurrency buying; and crypto exchange and digital wallet provider Blockchain.com, which is reportedly valued at $14 billion.
Some in the industry say the FCA has been taking an unnecessarily risk-averse approach to the approval process.
It is “disqualifying registration on the basis of super trivial things,” said the CEO of one firm set to withdraw its application who requested anonymity to avoid upsetting the FCA. “They’re looking for the tiniest little scratch and using that to invalidate the entire application,” the CEO told CoinDesk.
The criticism echoes that of Blockchain.com CEO Peter Smith, who cut into the FCA in an interview with U.K. newspaper The Telegraph in February. Smith said the regulator was not “eager enough to foster innovation and to work with the industry.” The U.K. has “fallen behind” as a result, he said. Blockchain.com in May earned a $5.2 billion valuation following a $300 million funding round.
Firms that are regulated in other jurisdictions have the option of pivoting their operations elsewhere to continue doing business. Earlier this week, crypto payments provider Wirex revealed it had withdrawn its application and plans to serve U.K. customers through its subsidiary licensed in Croatia.
Not all have this option, however.
“They’re screwed, I think, unless they can spin up a new entity in an unregulated area, which they might do,” said the CEO of one of the firms preparing to use an overseas jurisdiction, who also requested anonymity. “I know that some of these firms have been either in the process of [initial public offering] prep or serious funding talks and then those conversations have materially collapsed as a result of the FCA’s approach here, which is not meritocratic and is super subjective.”
There is another choice: legal action, a course taken by Gidiplus, a bitcoin (BTC) ATM operator who went to court to attempt to overturn the FCA’s rejection of its application. The case was dismissed, with the judge determining there was a "lack of evidence as to how Gidiplus would undertake its business in a broadly compliant fashion."
The legal route is likely to end any hope of a rapprochement in the future should the FCA or the Treasury change their stance. Anyone taking this course is also likely to need deep pockets.
The FCA, which is also taking over regulation of crypto ads, said it’s working to meet its legal responsibilities.
“We are continuing our work registering crypto firms to ensure they are not a conduit for money laundering and recently launched a consultation on how crypto is marketed to consumers,” the regulator said. “We will continue to work with HM Treasury, [which sets] the scope of crypto regulation in the U.K.”
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