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Twelve crypto firms in limbo over their UK registration can now continue to operate as the Financial Conduct Authority (FCA) has taken the last-minute decision to extend its temporary registration regime for crypto firms.
An update posted on the FCA website reveals that the regulator will keep the temporary regime open for a small number of firms “where it is strictly necessary to continue to have temporary registration”.
The reprieve will be a welcome relief for many crypto firms that have been left in limbo as the FCA’s temporary registration regime, which had allowed crypto companies to continue operating in the UK, was due to come to an end on March 31.
The regime was established in December 2020 to allow already operating crypto-asset firms, which had applied for registration with the FCA by that time, to continue trading as the regulator dealt with its backlog.
The assessment of the applications, however, has proved to be unexpectedly lengthy, creating uncertainty and confusion in the industry.
Since 2020, the regulator has approved 33 firms, while a dozen remained on the temporary registration list as of March 2022. These firms, which include the UK’s largest fintech Revolut, were risking being shut down in absence of getting a green light from the FCA.
Other crypto firms on the temporary registration list include BCB Group, BC Bitcoin, blockchain.com, CEX.IO, Coindirect, Copper, Globalblock, GCEX, ITI Digital, Moneybrain, and Tokencard t/a Monolith.
Ahead of the expiration of the temporary regime, many industry players, including London-headquartered B2C2 and Wirex, withdrew their applications from the FCA, making media outlets wonder whether the country may face an exodus of crypto firms.
“It is unusual for the FCA to offer little support to companies trying to comply with their requirements," Ian Taylor, executive director of CryptoUK, said, adding that the industry needs "more transparency and guidance on best practice from the FCA so that companies that are already 90% compliant can be supported in reaching 100%”.
The FCA has now said “the TRR will close on April 1, for all but for a small number of firms where it is strictly necessary to continue to have temporary registration. This is necessary where a firm may be pursuing an appeal or may have particular winding-down circumstances.”
80 percent rejected
The FCA received almost 200 applications under the temporary regime, the majority of which have been rejected or withdrawn.
Industry association CryptoUK called it "unprecedented" that 80 percent of the applications, that is 160 out of 200 British crypto companies, have been asked to withdraw or been rejected.
The FCA said many of the applicants have a poor understanding of their anti-money laundering (AML) obligations, which prolongs the process, while industry experts allege the FCA lacks the necessary resources to carry out the assessments in a timely manner.
Taylor said the impact for those companies is that they will have to operate offshore. "This means that there will be no consumer oversight if a UK citizen buys products from an online business domiciled in Malta, for example, as they may still sell their services into the UK," he stressed.
Consumers will have no recourse from the regulator, and it will also result in thousands of job losses at those 160 crypto companies that had to withdraw.
These companies now may move to "less advanced regulatory environments", where global AML and know your customer (KYC) standards do not apply, which creates an additional risk in terms of illicit finance and sanctions avoidance, according to Taylor.
