Crypto firms face cliff-edge in UK as time ticks down for AML approval

The fate of the ability for 96 crypto firms to operate in the UK hangs in the balance, as new data highlights a backlog of anti-money laundering applications that must be dealt with by the Financial Conduct Authority (FCA) in less than two months.

More specifically, 27 firms remain in limbo on the temporary register, while 69 “new entrant” applications also hang in the balance.  

Without approval before a March 31 deadline, the future of these crypto firms’ UK operations — including exchanges, wallets and an array of other businesses — is uncertain.  

Since January 2020, the FCA has been tasked with supervising cryptoasset firms for AML and counter-terrorist financing. The FCA first kicked off the registration scheme with an initial deadline of one year for applicants.

A temporary registration scheme was established at the end of 2020, meaning that some companies have been allowed to keep operating while they go through the full registration process. 

In July last year, amid a sizable backlog of licensing applications and after an initial deadline extension, the FCA extended its temporary licensing regime deadline for a second time. Firms whose applications have not yet been approved now have until the end of March to prove their worth.

In July, the regulator said that a significantly higher number of businesses were not meeting the required standards under the Money Laundering Regulations (MLRs). This resulted in what it called an “unprecedented” number of businesses withdrawing their applications. 

If a business is rejected by the FCA, it can leave a stain on its record, meaning long-term consequences for being approved for licenses in other jurisdictions.

Diving into the numbers

Exclusive data provided to The Block shows that, as of February 9, 79 firms which qualified for the temporary register have been given a verdict on their application. Twenty-five are now fully registered and 54 have been rejected or have had to withdraw applications. 

Meanwhile, 27 firms — including $33 billion neobank Revolut — remain in limbo on the temporary register, with applications still under assessment. 

In addition to the applications for the temporary register, which closed on 16 December 2020, the FCA has received and continues to receive applications from “new entrant” firms to continue crypto activities. 

Those firms cannot continue UK business unless and until they have been approved and added to the full FCA register. With the deadline now passed, these firms are ineligible for temporary registration.

To date, the regulator has received 153 applications from new cryptoasset firms. Of those, six have been approved and given full admission to the FCA register. More than half, 78 firms, were either refused or withdrew their applications. 

Overall, 69 “new entrant” applications also hang in the balance. 

Notable firms so-far missing from both registers include crypto loans network Celsius and exchange Bitpanda. Celsius said it had moved its main place of business from the UK to the US last year. 

Bitpanda explained that it had applied to be on the temporary register in May 2021, but it had missed the deadline. It is now in the process of being admitted to the full register. 

“For forgein [sic] firms who are compliantly servicing customers from overseas, it can be tricky to quickly set up a local entity that then services UK customers to be able to qualify for a temporary regime,” a spokesperson for Bitpanda said in a statement.

They added that the current MLR regime and its territorial scope “does not appear to favour firms who set up shop in the UK.”

“Overseas-based firms offering their services directly to UK customers from locations outside the UK are currently not captured by the UK’s MLRS and therefore these firms do not need to register with the FCA. This raises the question whether the current regulatory landscape ensures a national level-playing field for cryptoasset services providers in the UK,” the spokesperson said. 

Plan B for firms in limbo?

Ian Taylor, executive director at trade group CryptoUK believes that, judging by past experience, a small number of new firms will be admitted to the register in the coming months. Among officials in the UK Treasury there is not much appetite for the deadline to be extended a third time, he said. 

“Lawyers for UK firms are coming up with a plan B – which would be to domicile elsewhere,” Taylor told The Block. 

The trade body’s main concern with the handling of the crypto register is the lack of transparency around decision making, as well as how regulators are held accountable for those decisions. 

“It doesn’t seem fair to UK businesses that are trying to do the right thing,” Taylor added.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.