A UK financial markets watchdog is extending the deadline for cryptocurrency firms to get approved by the regulator, including neobank Revolut.
The Financial Conduct Authority (FCA) had previously given all companies trading with cryptoassets until Thursday the 31st of March to get the OK from the regulator. Firms failing to get verified by the FCA would no longer be allowed to provide cryptocurrency services.
Companies have had two years to prepare already. Back in January 2020, the FCA warned that it would introduce stricter rules for cryptocurrency companies. The rules would be introduced to ensure businesses comply with new money laundering and terrorism financing laws.
Cryptocurrency has often been linked to illicit activities. Ransomware gangs favour bitcoin as a payment method because of its ability to obfuscate the money trail. Regulators have warned that Russian oligarchs may us cryptocurrencies to skirt sanctions for the same reasons.
As part of this push, the FCA said firms providing cryptocurrency services would have to register with and be approved by the regulator. At first firms had until January 10, 2021 to register. The deadline was then extended to March 31, 2022.
The FCA also introduced the Temporary Registration Regime, which allowed cryptocurrency companies that were already up and running before December 2020 to keep trading while they were being assessed by the watchdog.
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“We need to be assured firms’ managers are fit and proper and they have the systems to properly manage financial crime risk,” Mark Dixon, senior press officer at the FCA, tells Verdict.
As of now, 33 companies have been approved and 12 are still on the temporary registrations list. Of the firms the FCA had assessed, in excess of 80% have either withdrawn their applications or been refused or rejected following the regulator’s intervention. Rejected firms can appeal the decision to the courts.
The FCA said the cryptocurrency firms that can enjoy a stay of execution could do so where it was necessary because they may be pursuing an appeal or may have particular winding-down circumstances. That includes companies like the $33bn challenger bank Revolut and digital asset investment company Cooper that counts the former chancellor of the Exchequer Philip Hammond as one of its advisers.
Revolut, like many other neobanks, provides a cryptocurrency trading service.
“We don’t comment on ongoing regulatory applications,” a Revolut spokesperson told Verdict.
Cooper failed to return requests for comment before the publication of this story.
Other cryptocurrency exchanges have opted out of the UK temporary regime.
“In the UK, we operated under the FCA´s temporary permission framework,” a Bitstamp spokesperson told Verdict. “We have been working since the VASP regime was introduced in the UK to transfer the crypto activities to outside the UK with the intent that our clients will be held and managed in one of our regulatory centres – Luxembourg, New York, Singapore and new in 2022 Bitstamp Global Ltd in the British Virgin Islands. To this effect, we have voluntarily withdrawn from the UK temporary regime.”
FCA criticised by for cryptocurrency rules
The lead-up to the FCA cryptocurrency deadline has been rife with frustration on both ends. On the one hand, the watchdog has fired several warning shots in an attempt to encourage cryptocurrency businesses to get their act together. It has rebuked unregistered cryptocurrency ATM providers, warning them that stricter policing is incoming and that they better shut down their operations or face enforcement actions.
The FCA also expressed concerns about Binance buying a stake in Eqonex, which had been approved by the regulator. However, as Verdict has reported in the past, the watchdog believes Binance is not fit to operate a regulated business in the UK. The FCA said it had the power to suspend or cancel a company’s registration on several grounds.
On the other end of the spectrum, many industry insiders have expressed frustration with the FCA, accusing the regulator of being slow and unresponsive.
“The process has been a total disaster from the FCA’s side of things,” a lawyer advising crypto firms told CNBC.
The FCA has also been slammed by industry stakeholders who believe the watchdog is focusing too much on the risks involved with dealing with cryptocurrencies and not the opportunities of the nascent market.
Mauricio Magaldi, global strategy director for crypto at the fintech consultancy 11:FS, is one of them. While acknowledging that market needs a “proper regulatory framework” to protect customers, he believes the UK watchdog’s approach could lead to the nation falling behind other markets.
“By moving too fast and too narrow, rules and timeframes create hurdles to crypto firms that could potentially displace them from the UK market,” Magaldi says. “A number of companies, including the likes of Copper and Revolut, can end up being forced to wind down their crypto services in the UK should their applications fail to meet [the] holier than thou standards.”
This is to be expected. As research firm GlobalData noted in a recent report, while different governments around the world are introducing new rules, market watchers shouldn’t “expect a streamlined approach.”
“Fintech regulations are nascent, and governments are taking widely different approaches,” the researchers wrote.
A quick glance around the globe highlights the different approaches lawmakers have taken. In the US, president Joe Biden recently signed an executive order to force federal agencies police the sector together. It remains to be seen if the order put an end to rumours of a turf war brewing between the US Commodity Futures Trading Commission and the Securities and Exchange Commission.
South Korea recently introduced strict registration rules, leaving only four cryptocurrency exchanges able to operate in the country.
The European parliament recently voted down proposals to ban bitcoin whereas Bolivia banned bitcoin back in 2014. On the other end of the spectrum you have El Salvador, which made bitcoin a legal tender in the fall of 2021.
Maybe this disparity in approaches s why some market stakeholders have taken a more understanding approach when judging the FCA.
“The FCA is pioneering a regulatory gold standard that will provide safe and secure access to crypto and digital currencies to ensure the safety and security of UK consumers,” Alex Reddish, managing director at fintech startup Tribe Payments, tells Verdict. “Despite the clear and overwhelming need for regulation, there has been a public backlash about the slow pace of feedback and approvals, with many crypto firms left in limbo as the deadline looms. It seems that the FCA is damned if it does and damned if it doesn’t.”
Moreover, some businesses have welcomed the application process.
“[We] felt that the process was handled smoothly and within reasonable timeframes,” Chirag Patel, CEO of digital wallets at Paysafe, which was approved by the FCA to conduct cryptocurrency business in the UK in November. “For sure, it was a highly rigorous process, but we welcome that and believe it’s the right approach in the interests of UK consumers.”
GlobalData is the parent company of Verdict and its sister publications.