The UK’s temporary registration regime, introduced in Dec. 2020, was supposed to enable crypto firms to continue their trading operations until they received final approval from the Financial Conduct Authority (FCA). But successive extensions to the regime and delays to the final approval deadline have forced them to seek regulatory approval outside the UK. The current deadline for approval is March 31, 2022.
According to reports, many crypto businesses have dropped off the FCA’s approval waitlist and are planning to move their operations to other geographies in Europe and abroad. Their decision has prompted concerns about an exodus of crypto innovation from the UK.
Bloomberg stated that more than 80% of firms registered with the FCA have dropped off the approval waitlist. Six firms awaiting final registration dropped off the list last week. Among them are crypto market maker B2C2 and digital banking apps Wirex Ltd. and Trastra Ltd.
Another crypto publication, The Block, writes that Blockchain.com, a popular site for crypto trading, also withdrew its application and is planning to register its business in four geographies – Lithuania, the US, Ireland, and Germany. It will continue to service UK customers from its locations abroad.
A Stern Stance
Cryptocurrencies received a growth shot during the pandemic. In UK, public ownership of cryptocurrencies rose from 1.9 million in 2020 to 2.3 million in Jan. 2021, according to research conducted by FCA. “Fewer crypto users regard them as a gamble (38% down from 47%) and more see them as an alternative or complement to mainstream investments, with half of crypto users saying they intend to invest more,” the agency wrote.
But greater awareness about the possibilities of cryptocurrencies has also brought unwelcome attention from regulators. The FCA’s criticism and generally unfavorable view of cryptocurrencies may have played a role in prompting crypto companies to move out of the UK. The agency is not a fan of cryptocurrencies and has issued several warnings against the asset class, categorizing it as “highly speculative” in some instances.
Even as it announced an extension to the temporary registration last June, the FCA also said that a “significantly high number of (crypto) businesses” had not met its anti- money laundering criteria. Its regulatory pincers are wide and encompass multiple aspects of crypto trading. For example, they are meant to control the type of tokens available for trading at crypto businesses. They also inflate operational costs by making expensive compliance and regulatory disclosures mandatory.
The agency made it clear that those firms which did not meet the agency’s requirements were free to withdraw their applications. “Our concern with any legislation is where it unfairly impacts firms going about it the right way in jurisdiction, and by definition, drives customers to an easier location off-site. That’s a potential byproduct of some of these proposals — how on earth can that be a positive?,” Blair Halliday, head of crypto exchange Gemini, told Bloomberg.
But that concern is misplaced. Crypto companies can possibly reduce overall regulatory costs by shifting their base elsewhere while continuing to service UK customers online. This is what most of them are doing. Some, like the world’s biggest cryptocurrency exchange Binance, are still actively courting the agency for approval and attempting a back door entry into the market.
Meanwhile, crypto representatives are concerned that about the possibility of an exodus undermining the UK’s innovation cred. Philip Hammond, former Chancellor of the Exchequer and board member at a crypto custody service, told Bloomberg in January that it was “frankly quite shocking” that the UK was behind other EU players in setting clear rules for cryptocurrencies. “It’s not in the natural order of things,” he said.