The UK’s Financial Conduct Authority (FCA) reported on Sept. 3 a massive 87 percent failure rate among cryptocurrency companies applying for a license under the country’s money laundering regulations in the last fiscal year.
According to the report, only four companies, BNXA (payment partner Binance), a unit of PayPal U.K. and Komainu (Nomura’s cryptocurrency depository joint venture), were approved out of 35 applications submitted between April 2023 and March 2024.
The others were rejected or withdrawn due to incomplete applications or failure to meet the FCA’s stringent standards.
Since the FCA began overseeing the cryptocurrency sector’s compliance with AML regulations in January 2020, the regulator has processed 359 applications, but only 44 firms have successfully registered.
The FCA report indirectly shows the difficulties many cryptocurrency companies face during registration. According to industry participants, long wait times, minimal feedback and what some describe as inconsistent treatment by the FCA have made the process particularly difficult.
This has prompted some firms to abandon their applications or seek registration in more cryptocurrency-friendly jurisdictions, allowing them to continue serving UK customers from abroad.
One of the main criticisms of the rejected applications is the lack of transparency and clarity in the FCA’s expectations. The authority defends its position, noting that it provides detailed guidance to help firms understand the requirements for registration.
The regulator’s reviews indicate that many applications lacked key elements necessary for a thorough evaluation, and some applications were deemed invalid due to poor quality or incomplete information.
The FCA’s strict standards are designed to ensure that cryptocurrency firms adhere to robust anti-money laundering (AML) and counterterrorist financing (CTF) measures. However, the regulator’s strict approach has sparked debate about whether the regulatory environment is too restrictive, potentially stifling innovation and pushing companies overseas.
UK’s position on cryptocurrencies amid growing interest from the public
Looking ahead, the FCA is poised to gain more control over the cryptocurrency sector in anticipation of new legislation granting it the authority to authorize cryptocurrency companies to fully operate in the UK.
However, this regulatory evolution may take time due to the new Labour government’s decision to put its legislative plans for cryptocurrencies on hold once it takes office in July 2024. As of September 2024, the FCA’s ongoing challenge is to balance rigorous regulatory oversight with the need to support a vibrant and innovative cryptocurrency industry.
The regulator has spoken openly about its commitment to maintaining high standards, but recent statistics have shown otherwise. The hurdles faced by cryptocurrency companies trying to cope are becoming even more complex.
To help potential applicants, the FCA has released comprehensive feedback on the quality of applications received, outlining both good and bad practices under the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017.
This feedback is intended to help companies better prepare applications and understand the FCA’s requirements, potentially improving the acceptance rate in the future. Adhering to the FCA’s expectations and maintaining rigorous compliance standards will be key for current and future applicants to secure their position in the UK market.
This is particularly important as a recent survey conducted by Zumo and Focaldata found that more than a third of young adults in the UK see cryptocurrency as a key election topic ahead of the upcoming general election.
The survey, which polled more than 3,000 UK adults, found that 34% of 18-34 year olds believe that politicians should prioritize the development of the cryptocurrency industry, and 38% of 18-24 year olds have directly invested in cryptocurrencies.
Many young adults see digital assets as a potential long-term financial gain; many have friends or family involved in cryptocurrency investments. The interest in digital assets among young adults suggests that the country’s regulatory stance must be improved.
