UK Financial Watchdog Rejects Almost 90% of Crypto Firms Seeking Registration

ByCrypto Currency

Nearly 90% of cryptocurrency firms applying for registration in the United Kingdom over the past year have been turned down by the FCA.

Nearly 90% of cryptocurrency firms applying for registration in the United Kingdom over the past year have been turned down by the Financial Conduct Authority (FCA), according to the regulator’s 2024 annual report.

The high rejection rate stems from the firms’ failure to meet necessary standards, particularly in areas related to fraud prevention and anti-money laundering protocols. The FCA revealed that only four of the 35 crypto firm applications submitted in the last 12 months were approved.

The report detailed that fifteen applications were withdrawn, and nine were outright rejected due to inadequate compliance with regulatory requirements. “Over 87% of crypto registrations were withdrawn, rejected or refused for weak money laundering controls,” the report stated.

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Submissions Lacked Essential Components

In a separate feedback statement, the regulator noted that several submissions lacked essential components necessary for a proper assessment. Some were also invalid due to poor quality submissions.

In an effort to ensure greater consumer protection, the FCA introduced a new “financial promotion perimeter” in June 2023, aiming to make crypto advertising more transparent, fair, and not misleading.

The report also indicated that the UK public is becoming more cautious regarding cryptocurrency investments. According to the FCA, 63% of consumers who reported scams did so before investing, a 5% rise from the previous year.

Despite these efforts, international law firm Reed Smith has warned that crypto firms may start looking outside the UK for more favorable regulatory environments.

The firm cited lengthy registration processes, with an average wait time of 459 days, and a perceived lack of political support from the FCA for timely handling of applications. Since 2021, 186 applications have been withdrawn.

“If it’s the case that applications are falling because crypto firms have essentially given up waiting and started looking abroad, this should send a clear warning about London’s competitiveness,” said Reed Smith partner Brett Hillis.

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UK Tightens Regulatory Oversight on Crypto Firms

The UK has increased regulatory scrutiny on the cryptocurrency sector, following several high-profile bankruptcies last year. Last year, the FCA introduced new regulations requiring all crypto firms to register with the financial watchdog.

Additionally, these firms must have their marketing materials approved by an FCA-authorized entity. One of the key updates mandates that cryptocurrency exchanges issue clear warnings to customers about the risks associated with digital asset investments.

The FCA has issued warnings to both domestic and international exchanges operating in the UK, cautioning that non-compliance could lead to severe consequences. Potential penalties include unlimited fines and up to two years’ imprisonment for failing to meet the regulatory requirements.

Editorial Opinion: Is The UK’s FCA An Old Boy’s Club?

It’s no secret that the UK FCA has a reputation as an ‘Old Boy’s Club’; indeed, over the past decades, the revolving door between the City of London and Financial Watchdog has been well-documented.

With the introduction of new cryptocurrency laws, especially focused on cryptocurrency marketing, last year – it appears the new regulatory regime is serving a purpose many pundits feared in 2023 – keeping out the little guy.

With the requirement for crypto licenses to be held by ‘accredited investors’, it’s no surprise that most applications – primarily stemming from home-cooked developers and ambitious youth start-ups are being denied.

This could be an attempt to balance the upset triggered in 2021 when TradFi players in the City of London felt side-lined by their inability to participate in the spectacular retail bull run.

Nevertheless, many in the UK crypto industry continue to feel that the FCA’s attempts at ‘protecting investors’ (including the cat-and-mouse closure of derivatives trading access to UK retail customers) will suffocate future crypto innovation in the British Isles and push crypto entrepreneurs and traders alike overseas.

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Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.

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