Britain’s ambitions to become a global cryptocurrency hub are being hampered by a conservative regulatory approach that has seen applications to register crypto businesses fall by 51% in the past three years.
Editorial
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Figures provided by the Financial Conduct Authority (FCA) to solicitors Reed Smith following a freedom of information request reveal that just 29 requests were received in the last year (1 May 2023 to 30 April 2024), compared to 42 and 59 in the previous two years.
Only seven applications were received in the first quarter of 2024 – the latest period for which complete data is available – the second lowest quarter in three years.
With the average approval time for applications over the past three years being 459 days, experts wonder whether the FCA’s speed of approval could harm the UK’s broader efforts to become a global crypto hub.
A report from the UK’s National Audit Office published in December found that due to a shortage of cryptocurrency skills, the FCA took longer than expected to register crypto-asset firms under money laundering regulations in 2021, and it is still struggling to recruit and retain staff with these skills.
Meanwhile, over the past three years, 186 firms have withdrawn their applications, suggesting that a growing number are being put off by the FCA’s strict rules on financial promotions. Since the financial promotions rules came into force in October 2023, the FCA has identified 1,010 breaches in the first seven months to April 2024
Commenting on the data, Brett Hillis, partner at Reed Smith, said the time it takes to approve a registration application can take roughly as long as a full banking licence application, a factor he described as “frankly staggering”.
“If we expect companies to apply for full authorisation later, when the regulatory perimeter expands, it is clear that something needs to change to speed up the process, especially if London is to become a major centre for digital assets.
“If applications are falling because crypto businesses have given up waiting and started looking abroad, that should send a clear warning about London’s competitiveness. Businesses are not going to wait forever for approval, particularly if another jurisdiction appears to offer a relatively quick process, with access to a market of comparable or even larger size. Indeed, we risk seeing the UK crypto market challenged from outside by a growing number of increasingly crypto-friendly regimes and also from within by a remarkably slow approval process.”
