LONDON — A slew of cryptocurrency companies could be forced to wind down their business in the U.K. if they fail to register with the finance watchdog ahead of a key deadline next week.
From Mar. 31, firms operating crypto services in Britain must be registered with the Financial Conduct Authority, which is tasked with overseeing how digital asset firms combat money laundering.
Last year, the regulator extended the deadline allowing firms on a temporary register to continue trading while they sought full authorization — it’ll close once the deadline passes. The FCA said many crypto companies had withdrawn their applications as they were not meeting the required anti-money laundering standards.
Now, with just days to go until the new deadline elapses, the fate of firms on the temporary register — including $33 billion fintech firm Revolut and Copper, a crypto start-up that counts former U.K. Finance Minister Philip Hammond as an advisor — hangs in the balance.
‘A total disaster’
Many industry insiders have expressed frustration with the FCA’s handling of the crypto register.
One lawyer advising crypto companies on their applications said the regulator had been slow to approve applications and was often unresponsive, a sentiment echoed by other figures in the sector.
“The process has been a total disaster from the FCA’s side of things,” the lawyer told CNBC, speaking on the condition of anonymity due to the sensitive nature of the matter.
An FCA spokesperson said it has approved just 33 crypto firms’ applications so far. More than 80% of the firms it has assessed to date have either withdrawn their applications or been rejected.
“We’ve seen a high number of the cryptoasset businesses applying for registration not meeting standards there to help ensure firms are not used to transfer and or disguise criminal funds,” the spokesperson said.
“Firms that do not meet the expected benchmark can withdraw their application. Firms that decide not to withdraw have the right to appeal our decision to refuse, including through the courts.”
Why it matters
Gemini, the crypto exchange operated by Tyler and Cameron Winklevoss, was among the first firms to get approved by the FCA.
Blair Halliday, Gemini’s head of U.K., said the licensing regime is important as it provides customers the assurance that they’re dealing with a firm that has undergone rigorous scrutiny.
“Getting a crypto asset registration in place was a critical step for crypto in this country,” Halliday told CNBC. “It gave firms that really have that desire to seek regulatory approvals something to demonstrate as a key differentiator.”
Crypto industry association Global Digital Finance’s Lavan Thasarathakumar said there has been “a lot of frustration” over the process.
“Fundamentally, it has been too slow,” Thasarathakumar said, adding that the FCA has been dealing with a “huge backlog” of applications for the register.
And some companies are still withdrawing their applications.
That includes B2C2, the London-based crypto trading firm, which recently withdrew from the FCA’s temporary register. Since Monday, all of B2C2’s spot trading activity has shifted to the company’s U.S. entity. The firm said its derivatives business is unaffected as it is handled by an FCA-authorized subsidiary.
“We are committed to ensuring this move causes as little disruption as possible and are working closely with our clients to ensure they continue to have a seamless trading experience with us,” a B2C2 spokeswoman told CNBC via Telegram.
Firms that have had their applications rejected by the FCA can appeal, but the process is a long one and could need to go through the courts.
A tribunal recently sided with the FCA’s decision to refuse an application from the crypto exchange Gidiplus.
Brexit dividend?
Mauricio Magaldi, global strategy director for crypto at the fintech consultancy 11:FS, said the current regulatory direction of the U.K. puts the country at risk of falling behind the U.S., European Union and other regions.
President Joe Biden has signed an executive order calling for coordination from the government on oversight of digital currencies, while EU lawmakers recently voted down a proposal that would have effectively banned bitcoin mining in the bloc.
“While major jurisdictions are spotting the opportunity and the risk, the U.K. is emphasising the risk,” Magaldi told CNBC. “By moving too fast and too narrow, rules and timeframes create hurdles to crypto firms that could potentially displace them from the U.K. market.”
Industry representatives fear this could put the U.K. at a disadvantage at a time when it is vying to be a global leader in financial innovation post-Brexit. The country is home to a thriving fintech industry, attracting nearly $12 billion in investment last year.
But fast-growing fintechs like Revolut and Copper may soon be forced to wind down their crypto activities in Britain and move offshore if they don’t make it onto the full register. Both companies declined to comment when contacted by CNBC.
Firms like PayPal and Coinbase, which sell crypto services in the U.K. through overseas subsidiaries, will be unaffected.