When Rishi Sunak, then the UK’s Treasury head and now Prime Minister, vowed to transform the United Kingdom into a cryptocurrency hub, it sparked hope and anticipation within the industry. However, two years down the line, those ambitions are facing significant challenges, with industry insiders pointing to a sluggish rate of company registrations.
A deep dive into the registry of virtual asset service providers, established by the Financial Conduct Authority (FCA) in 2020, reveals a stark reality. Despite 28 companies applying over the past year to offer crypto asset services, only four applications received the FCA’s seal of approval.
Among the approved entities are heavyweight players like Interactive Brokers, Bitstamp, Komainu backed by Nomura, and payments giant PayPal. In contrast, the number of withdrawn applications surpassed new registrations by tenfold, with 43 companies retracting their applications.
Various reasons underpin this contrast, according to sources advising crypto firms on their registrations. They cite the stringent standards set by the FCA, inadequate applications submitted by firms, and the imposition of stringent rules on crypto advertising.
Oliver Linch, CEO, and general counsel of defunct crypto exchange Bittrex Global, emphasizes the need for better guidance and understanding throughout the application process. He underscores the necessity for clarity regarding forthcoming regulations and expectations from the FCA.
Despite these challenges, optimism lingers among crypto enthusiasts regarding the UK government’s crypto ambitions. With new digital assets laws on the horizon, designed to rival those of the European Union, there’s a glimmer of hope for the industry’s future prospects.
However, the anti-money laundering and anti-terror financing standards set by the FCA present a great barrier for financial firms in the UK. Historically, many companies seeking to provide crypto services have struggled to satisfy the regulator’s stringent requirements, according to DL News.
Sarah Pritchard, the FCA’s executive director of markets, revealed that 85% of firms applying failed to meet even the minimum standards early in 2023. While some view this as positive, others, including experienced compliance professionals, find it challenging to navigate the regulatory landscape.
The FCA, on its part, asserts that it registers firms demonstrating the ability to meet the required standards. Regular engagement with the industry, detailed feedback to non-compliant applicants, and pre-application meetings to clarify requirements underscore the regulator’s commitment to support applicants.
The surge in withdrawn applications could also be attributed to the FCA’s strict advertising rules, extended to crypto companies in October 2023. These rules mandate clear and non-misleading advertising, ensuring consumers are adequately informed about investment risks. However, compliance with these complex regulations comes at a significant cost, pushing players like ByBit, Binance, and PayPal to halt services to UK customers.
As the UK struggles with regulatory hurdles, the road to becoming a global crypto hub appears fraught with challenges, underscoring the need for a delicate balance between regulatory oversight and fostering innovation in the burgeoning crypto industry.