Only 4 Crypto Firms Approved as UK’s FCA Rejection Rate Hits 87% in 2024

A Year of Challenges for Crypto Registrations in the UK

The UK's Financial Conduct Authority (FCA) has intensified its scrutiny of cryptocurrency firms, creating a formidable environment for companies seeking registration.

In the fiscal year ending March 31, 2024, only 4 out of 35 crypto firms managed to secure approval under the FCA's stringent anti-money laundering (AML) regulations.

Source: FCA

This translates to a rejection rate of over 87%, marking a notable increase from the previous year’s figure of 85%.

The approved firms include notable players like BNXA, Binance's payment partner, PayPal UK, and Komainu, a joint venture involving Nomura that specialises in crypto custody services.

However, the overwhelming majority either withdrew their applications or were outright rejected, often due to missing critical elements required for a complete assessment by the regulator.

Strict Standards and Regulatory Hurdles

The FCA’s uncompromising approach stems from its responsibility to regulate the crypto sector under the UK's AML and counter-terrorist financing (CTF) rules, a mandate it assumed in January 2020.

Since then, 359 applications have been submitted, but only 47 firms have successfully navigated the process.

Despite the FCA issuing guidance on what constitutes good and poor practices, firms continue to struggle with the stringent requirements.

It has been reported that crypto companies face long waiting times and inadequate feedback from the FCA, contributing to a growing sense of frustration.

As one crypto executive, Oliver Linch of Bittrex Global, noted,

"Firms may just have assumed that they would be fast-tracked by the FCA or given an easy ride, and they’re now discovering that they underestimated the rigour of the system. That is a good thing."

Firms Leaving the UK

The complicated registration process has prompted many crypto firms to abandon the UK altogether.

Several companies now choose to operate in more lenient jurisdictions while continuing to serve UK customers from abroad.

With the Labour government's pause on further crypto legislation following a snap election, the regulatory landscape has become even more uncertain.

Ian Taylor, a board adviser to CryptoUK, voiced his concerns in May:

"It’s net negative, really, because we are laggards. We’re behind the rest of Europe firstly, and then other jurisdictions in Asia and the Middle East."

Despite these challenges, the FCA remains firm in its stance.

An FCA spokesperson remarked in August, defending the regulator's strict approach,

"We expect firms to be fit and proper and have adequate systems to identify and prevent flows of money from crime."

The FCA has not approved any crypto firms since February, when Portofino Technologies, an institutional market maker, became the most recent addition to the FCA's registry.

Declining Applications and Industry Concerns

The past few years have seen a steep decline in applications for crypto-asset exchange or custodian wallet provider registration.

Applications dropped by 51% over three years, from 59 to 42 to just 35 last year.

The majority of rejected firms failed to meet the FCA's rigorous AML requirements, with money laundering concerns playing a critical role in the rejection rate, which stood at an astonishing 87%.

Source: fca

By comparison, the rejection rate for financial firms in general was significantly lower at 36%.

These issues have not gone unnoticed by industry insiders.

Many have expressed concerns about the long-term impact of the FCA's policies on the UK's crypto ecosystem.

While the regulator's commitment to upholding high standards is clear, questions remain about whether such a strict stance will foster or stifle the growth of the industry.

As the global crypto regulatory environment continues to evolve, crypto firms are left with no choice but to adapt or seek more welcoming markets elsewhere.

FCA’s Regulatory Future in Limbo

The regulatory outlook for crypto firms in the UK remains murky.

With the FCA awaiting the passage of more comprehensive legislation, its ability to effectively oversee the burgeoning crypto sector is limited.

Meanwhile, the regulator’s strict AML enforcement has set the bar high, but it is unclear if this approach will prove effective in the long term.

For now, crypto companies face a challenging road ahead as they navigate the complexities of the UK's regulatory framework while watching for developments in other jurisdictions.

The growing sense of frustration among firms, exacerbated by long wait times and minimal feedback from the FCA, suggests that unless changes are made, many will continue to look elsewhere for more favourable regulatory environments.