The Financial Conduct Authority (FCA) issues fresh guidance to cryptocurrency companies applying for registration as it approves just 15 per cent of applications.
The FCA has announced a new set of guidelines for companies making cryptoasset applications as it provides insight into its burdensome registration regime.
The guidelines address every stage of the application process, including prior preparations and post-application procedures.
The FCA affirms that companies must include details of their business model and how it demonstrates risk assessment capabilities. Applications must present a clear understanding of money laundering regulations and how they correlate within their own group structure.
Applicants must also show that they are able to analyse blockchain data and monitor transactions using policies, controls and systems compliant with the FCA’s understanding of risk.
This guidance arrives as the UK watchdog reported that it has approved and registered 41 applications since coming into force in January 2020; just 15 per cent of the 265 applications made.
Twenty-nine of the remaining submissions were rejected while 195, or 74 per cent, were either refused or dropped out of the process.
Measurements to abide by
In this case, the FCA has exemplified an expansive interpretation of money laundering regulations (MLRs) with 85 per cent of applicants failing to meet the minimum regulatory standard. However, the response to the watchdog’s latest guidance asks how realistically these standards can be met.
Katharine Wooller, business unit director at digital asset protection firm Coincover, says “it’s easy to see how this might have happened.”
For her, the government has yet to introduce the standard needed to legitimise the industry and introduce some governance to the wild west.
“Until they do, there’s likely to be poor standards across the industry, including some that push the boundaries and directly create turbulence,” she comments, pointing to the fall of FTX as an example.
“Having said that, we don’t really need the government to lead us,” Wooller continues. “There are hundreds of crypto firms desperate for regulatory oversight. The temporary permissions fiasco has let them down.”
In light of the absence of coherent and standardised regulation, Wooller advises that the crypto industry “can and should set its own standards. After all, the solutions to these problems already exist.”
“For example,” she continues, “firms can go through independent audits, which would avoid controversies like the FTX collapse, and introduce transaction monitoring and other protective technology to mitigate against theft and loss.
“The crypto industry can and should set its own standards”
“Former chancellor, Philip Hammond has declared that the UK needs to take measured risk in order for the UK to excel as a leader in cryptocurrencies, but for that, the community needs measurements to abide by.
“If we want to get ahead as a global leader in digital assets, we need to stop assessing firms and start working with them to develop a regulatory framework.
“In the meantime, for those firms in the UK keen to ‘do the right thing’, the regulator is moving at a glacial in clearing out bad actors to the detriment of retail users and institutional investors alike,” Wooller concludes.
The shifting regulatory approach
For Charleyne Biondi, DeFi analyst at Moody’s Investors Service, the FCA’s recommendations subject crypto-assets services providers to compliance standards “almost as stringent and comprehensive as those imposed by the European Markets in Crypto-Assets (MiCA) regulation on governance, risk assessment processes, and transparency on the management structure.”
“This could set the tone for the forthcoming consultation on crypto-asset service providers, which are likely to follow a conservative regulatory approach. However, we expect UK regulations to be more flexible than the European Union’s.”