According to the UK’s Financial Conduct Authority (FCA), several crypto businesses are struggling to meet the regulator’s high bar for anti-money laundering controls. As a result, many of these firms may be forced to stop trading and shutter their doors.
Back in January 2020, the FCA had placed businesses carrying out certain crypto-asset activities under its regulatory umbrella — a move that required companies to register with the FCA if they wanted to continue operating in the UK. As a way to help existing crypto firms bridge the gap as they went through the registration process and to give the regulator time to evaluate each company’s application, the FCA established a Temporary Registration Regime (TRR) in December, through which registered businesses could continue to operate until their application was formally approved. The program was slated to end on July 9, 2021.
That approval process, however, has been slow-going.
In the six months since the registration regime launched, estimates place the number of crypto-asset firms admitted to the FCA’s formal register at five. That leaves 90 companies still pending approval.
Further still, 51 companies so far have withdrawn their applications — “an unprecedented number,” according to the FCA. Some companies that applied may not have actually needed to register with the FCA. Nevertheless, persistent AML/CFT deficiencies are likely to blame in the majority of cases. The FCA commented that “a significantly high number of businesses are not meeting the required standards under the Money Laundering Regulations resulting in an unprecedented number of businesses withdrawing their applications.”
While those that have pulled out of the registration process can re-apply, they must cease operations in the meantime. If they refuse and continue to operate without registering, they could be subject to fines and face other punitive measures, including legal action.
Even so, perhaps recognizing the struggle many crypto companies are facing, and given the backlog of applications the FCA still has to review, the regulator announced it was extending the TRR program’s window. Instead of ending the program next month, those with the conditional registration issued under the TRR can continue to operate provisionally until March 31, 2022.
Cryptocurrencies, in general, have come under intense scrutiny for being a favored method for criminals and terrorists to launder money and finance illicit activities. Mitigating those risks while still allowing the normal, law-abiding public’s demand for this new asset class is a very fine line to walk — a fact that can’t be lost on the FCA and likely the reason the application process has been so arduous. The slow-walking of approvals and the relatively high number of withdrawals send a clear message: the FCA is taking pains to get this right. Whether it succeeds remains to be seen.