Time’s up: Deadline passes for crypto firms to register with the FCA
On 10 January 2020, the Financial Conduct Authority (FCA) became the anti-money laundering (AML) and counter-terrorist financing (CTF) supervisor for UK cryptoasset firms. Two years in, how effectively is it performing its role as the gatekeeper of the new registration regime?
A considerable number of crypto firms were already trading prior to the introduction of the new regime under the Money Laundering Regulations (MLRs). Those firms trading immediately before 10 January 2020 – and which submitted their applications for registration prior to 16 December 2020 - were admitted to the Temporary Registration Regime (TRR), a transitional regime which allows such firms to continue trading pending the determination of their applications.
Due to, the FCA say, the complexity and standard of the applications received, in tandem with the pandemic, it was not able to assess all the applications from these existing firms by the original deadline of 9 July 2021. The TRR was therefore extended to 31 March 2022.
As at the end of December 2021 – the most up to date figures available - the number of crypto firms with temporary registration has been reduced from the original 90 or so down to 33. The FCA has clearly made significant in-roads. However, a substantial number of firms remain trading under the TRR with undetermined applications with the extended deadline now just weeks away. The FCA will not wish to apply for a further extension to the deadline for the transitional regime and as such will be under considerable pressure to determine those remaining applications as soon as possible.
There is no doubt that the recent ‘streamlining’ of the FCA’s decision-making process has significantly truncated the process by which firms can challenge the FCA when it is ‘minded to refuse’ their applications. Arguably, the slimmed-down process is making it quicker and easier for the FCA to decide against applications to register. It may be that we will soon see the first crypto firm to challenge such an adverse decision by referring it to the Upper Tribunal.
New firms, not benefitting from inclusion with the TRR, are unable to engage in cryptoasset activities covered by the MLRs unless and until their applications for registration have been granted. Firms currently trading within the TRR, with the attendant risks to consumer protection and the March deadline now looming, will undoubtedly be the focus of the FCA’s resources.
Only 30 crypto firms are currently listed as registered on the FCA’s website. The FCA has, in public statements, indicated that a high proportion of applicant firms – in the order of 90% - are withdrawing their applications. The FCA has pointed to this as evidence of how its robust approach is promoting its consumer protection objective. If, however, the low number of registered UK firms able to offer services to UK consumers is driving these consumers to use offshore firms, this must raise the question of whether the FCA’s robust approach is in fact achieving the goal of consumer protection.
For more information on any issues raised in this blog post, please contact a member of our FCA Investigation team.
Jill Lorimer is a Partner in our Criminal Litigation team and has an extensive track record in advising firms and individuals facing regulatory and criminal investigations by the Financial Conduct Authority (FCA). Having had the benefit of a 12 month secondment at the Criminal Prosecutions Team at the FCA, Jill has insight into the organisation’s approach to the investigation and prosecution of serious financial offences. Jill also advises firms from across the breadth of the regulated sector on the authorisation process, on registration under the Money Laundering Regulations and on supervisory issues. Jill has a particular interest in the regulatory and criminal aspects of cryptoassets and has spoken and written widely on this issue.
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