Cryptoasset Temporary Registration Regime Extended

  • Posted on: 10 June 2021
  • Written by: David Rodriguez

Cryptoasset firms that were trading in the UK before 10 January 2020 had to register with the FCA under the Money Laundering Regulations (MLR's) before 10th January 2021, or stop all activity. Those that applied for registration before 16 December 2020, and whose applications were still being assessed, were added to the Financial Conduct Authority's (FCA's) Temporary Registration Regime (TRR). The TRR was put in place to allow firms to continue doing business while their applications were still under FCA review and was intended to end on July 9th 2021. The deadline for the TRR has now been extended to 31 March 2022, following a extremely low rate of successful registration applications and allowing the FCA more time to continue their robust assessments. 

Due to a 'significantly high number' of businesses not meeting the required standards under the Money Laundering Regulations, a number of businesses ended up withdrawing their applications. To date the FCA only notes five registered cryptoasset firms on its register, an increase of only one since our webinar 'Cryptoasset Support Surgery' which took place on 4th December 2020. The FCA also notes that there are 112 firms that remain unregistered, meaning that since December 2020 as few as 1% of registration applications made it through.

The key points to note are:

  • The extended deadline allows cryptoasset firms that applied for registration before 16th December 2020 (that are part of the TRR) to continue to carry on business without currently being directly registered until the 31 March 2022.
  • New firms will have to wait for registration to be granted before commencing cryptoasset activity, regardless of whether their application is already under consideration by the FCA or they have yet to submit an application.
  • Firms that were doing business but didn't apply for registration before 16th December 2020, should have ceased conducting all cryptoasset business by 10 January 2021 and wound down in an orderly manner.

WHY HAS THIS HAPPENED?

The extension of the TRR should, of course, be well received by the industry; however concerns remain around cryptoassets services providers falling short to their AML/ Counter Terrorist Financing (CTF) obligations. This may be a consequence of the FCA not setting expectations clearly enough before the introduction of the new crypto registration regime in conjunction with a more proactive approach to supervising firms in this space. It would be helpful if FCA considered expanding its guidance, providing clear examples of what a ‘good’ and, indeed, ‘bad’ application looks like.

Additionally, although not specifically within scope of the FCA’s powers under the legislation, the regulator continues to express its concerns around a lack of consumer protection, given the volatility of cryptoassets in the market. This also seems to be playing against firms looking to be registered with the FCA although, technically, there are no provisions in the Money Laundering Regulations that cover this.

The big question is, given that the FCA is appearing to direct its efforts on applications from firms included in the TRR, what will happen with new applicant firms? In theory, and based on what we have seen so far, the extension suggests that the FCA expects to complete the assessment process of firms in the TRR by 31 March 2022, and that new applicants (not included in the TRR) may need to wait until then to have a chance to get their applications reviewed by the regulator. This represents a serious obstacle for innovation in the UK’s crypto space and could discourage firms from choosing this country as an innovation hub for financial services.

NEED HELP WITH REGISTRATION?

Compliancy Services offer a range of support solutions for all impacted firms, from full support in compiling and managing a fresh application through to providing ad hoc advice to help firms provide satisfactory responses to the FCA’s questions.

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Our cryptoasset support surgery, held on 4th December 2020 also contains the answers to burning questions cryptoasset firms have about the application process and best practice when communicating with the FCA. In this webinar we outlined the common pitfalls that firms fall into when submitting applications to the FCA, discuss best practise when responding to FCA questions, spoke with the Chief Risk Officer at Ziglu one of only four firms successfully registered with the FCA before December 2020 and answered questions raised by stakeholders within the cryptoasset sector.

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