The lengthy, difficult registration process for crypto firms in the United Kingdom is acting as a deterrent to business, according to one local industry group.
CryptoUK, a self-regulatory trade association for the UK crypto industry, said some of its members “have expressed reluctance about the process” under the scrutiny of the Financial Conduct Authority (FCA).
A CryptoUK spokesperson told Cointelegraph that its members have “heard stories from organizations that have gone through it, and it’s quite a deterrent. The application is a huge ask in terms of resources, people and finances.”
Since January 2020, firms carrying out crypto asset activities in the UK have been required to register with the FCA.
On Sept. 6, Cointelegraph reported that 87% of crypto registrations in the UK had failed in over a 12-month span due to what the FCA called “weak” fraud protection and Anti-Money Laundering safeguards.
The UK FCA rejected nearly 90% of crypto business registrations. Source: FCA
Only four of the 35 applications were approved. A total of 15 withdrew their application before completion, while the rest were rejected or refused.
Natalia Latka, director of public policy and regulatory affairs at blockchain analysis firm Merkle Science, told Cointelegraph that prior to Brexit, the UK adapted its framework from the European Union’s Fifth Anti-Money Laundering Directive.
However, while some jurisdictions apply these conditions fairly loosely as a tick-box exercise, UK regulators take their duty very seriously.
“The process is far from automatic,” said Latka. “The FCA demands extensive information and documentation, which undergoes thorough review. Many firms struggle to meet the stringent requirements, as the FCA’s expectations are high, though they align with broader industry standards.”
However, while the FCA credits the Anti-Money Laundering restrictions as the single greatest barrier to registration, Latka believes other factors also play a role.
“Some participants have noted that the registration process itself, rather than the regulatory standards, contributes to the high number of withdrawals. The process is lengthy, and applicants feel there’s limited collaboration between the FCA and companies,” Latka said.
The data appears to back this assertion. From January 2020 through March 31, 2024, 240 out of 340 applications — a full 70% — were withdrawn before the FCA provided a final answer. Only 47, or 14% of applications were approved.
FCA approval process slow but getting faster
In August, following a Freedom of Information request, international law firm Reed Harris revealed that the FCA takes an average of 459 days to process a single registration.
Brett Hillis, a partner at Reed Smith, told the Financial Times on Aug. 28 that this is comparable in length to seeking a full banking license — a situation he described as “frankly astounding.”
“Looking at the time taken to approve applications, the question is not whether the FCA is being thorough, but whether its processes are too slow.”
However, there are signs that the FCA is getting to grips with the process and reducing waiting times. In an email to Cointelegraph, the FCA said that between Sept. 1, 2023, and Aug. 31, 2024, only two application cases took longer than six months to determine.
The issue is not simply one of speed, however. Latka believes the UK watchdog could be more supportive and collaborative.
“More guidance would help firms submit more effective applications,” Latka said.
Recent: North Carolina resists the CBDC tide with new payments ban
“Additionally, some have pointed out that applications are often returned entirely if documents are missing or insufficient, rather than allowing for additional time to address these issues, a practice more common in other sectors.”
As Latka pointed out, it’s a question of effective communication.
“What’s needed is better dialogue between regulators and the industry,” she said.
A closing window
Reed Harris also revealed that the number of aspiring applicants is on a downward trajectory.
The regulator received 29 applications between May 2023 and April 2024, compared with 42 in the same period over the previous year and 59 the year before.
This has stoked fears that the UK may lose out to more crypto-friendly regions.
Ali Khan, co-chair of the Web3 special interest group at the Institute of Directors — a UK business organization — and tech lead at law firm AS Legal, believes the culture of Britain’s institutions is currently working against it. He told Cointelegraph:
“Both the style and approach taken show the cultural challenges that legacy jurisdictions like the UK face in effectively regulating market participants who place huge value on decentralization and autonomy.”
Khan pointed to examples where swifter progress is occurring.
“Jurisdictions across the Global South, in particular, have made clear statements that they intend for this technology to be used to ‘leapfrog’ stages of ‘development’ that Western jurisdictions have undergone in order to compete,” Khan said.
“The early regulatory frameworks seen in Bahrain, and across the many jurisdictions of the UAE, are testament to that — designed and implemented far quicker than their equivalents in the UK and Europe,” he added.
In May, blockchain analytics firm Chainalysis announced that it would open its regional headquarters in Dubai, reflecting the growing importance of the United Arab Emirates as a crypto asset hub.
It has long been rumored that Binance will make the UAE its home, while Telegram’s Durov brothers have resided there since 2017.
The case for the FCA
While the FCA often draws criticism for the UK’s slow adoption of blockchain, there are other significant factors at play.
Despite former Prime Minister Rishi Sunak’s stated desire to make the UK a crypto-asset hub, progress under his leadership is difficult to find. From a crypto perspective, the Financial Services and Markets Act 2023, which provides a regulator scheme for stablecoins, could be considered the high of Sunak’s premiership.
A Labour victory in June has renewed optimism that speedier progress can be made under Prime Minister Keir Starmer.
Khan said, “If [the UK] wants to maintain a leading stance, this government must engage and incentivize professional communities and captains of industry.”
He welcomed the introduction of the Property (Digital Assets etc) Bill on Sept. 11 as a positive step for the UK. The bill proposes to recognize crypto assets as property under law.
It is not just politicians that have a role — the banking sector must also support the industry. Latka said that “access to banking services is also critical. Many participants have mentioned they still face challenges securing basic banking services in the UK.”
The CryptoUK spokesperson said its members still want and intend to apply for registration in the UK but have been “treading water” until regulatory uncertainty has cleared.
Recent: What ‘far-fetched’ scenarios could still send Bitcoin price to $0?
As for the FCA, it strongly defended its safeguarding record, which holds blockchain to the same standards as other industries.
A spokesperson for the FCA told Cointelegraph: “We offer significant support for firms interested in applying and register those that demonstrate they can meet the required standards. We expect firms to have adequate systems to identify and prevent flows of money from crime.”
“We hold many firms, not just crypto firms, to high standards. They are essential to help protect people, the integrity of our financial system and promote a sustainable and competitive sector.”