With nearly 100 cryptocurrency firms still waiting for approval to operate in the U.K. as a March 31 deadline approaches, it seems likely that the Financial Conduct Authority (FCA) will effectively be forcing many crypto service providers offshore to avoid stricter, new anti-money laundering (AML) regulations.
A total of 96 crypto firms remain undecided, with just six having won full approval, The Block reported. More than half of the 153 firms that applied have either been rejected or chose to withdraw to avoid an outright rejection that could damage their ability to gain AML approval in other countries.
Of that number, 27 are firms still operating under the temporary approval permissions that expire next month, and 69 simply have applications pending.
The list of undecided applications includes some big names, like the neobank Revolut. The U.K. firm already has European Union AML approval but hasn’t been able to crack its home turf.
Read more: Revolut Bank Granted Full EU Banking License Amid Criticisms of Unfair Competition
A Hard Line
The FCA has taken a very hard line on cryptocurrency businesses. In October, it banned the sale of crypto derivatives to small retail investors, saying they are too risky and too complex for unsophisticated investors.
See more: UK Regulator Forbids Sale of Crypto-Derivatives to Retail Investors
Another tough regulator is Advertising Standards Authority (ASA), which has been aggressively banning ads that do not include strict and prominent consumer warnings about the risks of cryptocurrency investments. Among those ordered to withdraw ads in the last few months are top crypto exchanges Coinbase and Crypto.com.
Read more: Ban of ‘Misleading’ Ads By UK Regulator Revives Debate Over Crypto Regulation
Another extension of the Temporary Registration Regime (TRR) is not likely, attorney Kingsley Napley said in a Jan. 22 Lexology blog post.
For that reason, the FCA “will be under considerable pressure to determine those remaining applications as soon as possible,” Napley added.
On top of 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,” Napley warned. “Arguably, the slimmed-down process is making it quicker and easier for the FCA to decide against applications to register.”
The agency has blamed the delays on the complexity of the process and the often low-quality of the applications it has received, as well as the pandemic.
The far stricter rules and difficulty of gaining full AML approval coincides with the March launch the FCA’s new National Cyber Crime Force, global law firm DLA Piper said in its Anti-Money Laundering Bulletin’s winter 2022 regulatory update.
“It is expected that this force will aim to deliver more fraud investigations and disruptions, and a more coordinated response to fraud across law enforcement,” it warned.
Offshore Loophole
The March deadline to win a place on the AML register has the potential to backfire, a representative of Vienna-based cryptocurrency exchange BitPanda told The Block.
Rather than toughen the U.K.’s AML capabilities, the end of the temporary licenses may actually decrease its ability to enforce the laws due to a loophole that lets firms located outside the country continue to sell crypto products inside its borders.
“Overseas-based firms offering their services directly to U.K. customers from locations outside the U.K. are currently not captured by the U.K.’s [money laundering rules] and therefore these firms do not need to register with the FCA,” the BitPanda spokesperson said. “This raises the question whether the current regulatory landscape ensures a national level-playing field for cryptoasset services providers in the U.K.”
In June, cryptocurrency loan company Celsius said in a blog post that “increased regulatory uncertainty” led it to move from the U.K. to the U.S. Despite the loophole, Celsius said it had stopped accepting new U.K. clients.
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