British ambitions to establish itself as a global crypto hub are being hampered by a conservative regulatory environment, resulting in a 51% drop in registration applications from crypto firms over the past three years.
Data from the Financial Conduct Authority (FCA), obtained through a Freedom of Information request by law firm Reed Smith, shows that only 29 applications were received in the last year (from May 1, 2023, to April 30, 2024), significantly lower than the 42 and 59 applications in the two preceding years. The first quarter of 2024 saw just seven applications, marking it as one of the lowest quarters in recent years.
Concerns have been raised about the lengthy approval process, with the average time to process applications over the last three years being 459 days. Experts are questioning whether the FCA’s approval speed is hindering the UK’s broader ambitions to become a leading global crypto center.
A report from the UK’s National Audit Office in December highlighted a skills shortage in the crypto sector, which resulted in delays in registering crypto-asset firms under the money laundering regulations in 2021. The FCA continues to face challenges in recruiting and retaining employees with the necessary expertise.
In the past three years, 186 firms have withdrawn their applications, indicating that many have become disheartened by stringent FCA rules on financial promotions. Since the introduction of these rules in October 2023, the FCA has reported 1,010 breaches in the first seven months leading up to April 2024.
Brett Hillis, a partner at Reed Smith, commented that the time required for application approval resembles that of obtaining a full banking license, which he finds “frankly astounding.” He notes, “If we expect firms to seek full authorization in the future as regulatory frameworks expand, there clearly needs to be a change to expedite this process, especially if London aspires to be a major hub for digital assets.”
He further emphasizes the risk posed by firms looking abroad if they continue to encounter delays in the UK, stating, “This should serve as a stark warning about London’s competitiveness. Companies are unlikely to wait indefinitely for approval when other jurisdictions offer quicker processes and access to comparable or even larger markets. We face challenges from both external crypto-friendly jurisdictions and internal delays in the approval process.”
An FCA spokesperson responded to the developing situation, stating, “We provide robust support for firms looking to apply and register those that demonstrate compliance with required standards. We expect firms to meet the fit and proper standards and maintain systems to prevent criminal money flows. Upholding these standards is vital for protecting individuals and the integrity of our financial system.”