87% of Crypto Registration Applications Failed to Meet UK AML Standards for Approval: FCA

Highlights:

• 31 of 35 crypto applications failed to meet UK AML regulations in the past 12 months.
• The FCA’s lengthy process and unclear guidance have driven firms away.
• Out of 359 applications since 2020, only 47 firms were approved.

According to the UK Financial Conduct Authority’s (FCA) 2024 annual report, over 87% of crypto firms applying for registration in the United Kingdom failed to meet anti-money laundering (AML) standards during the fiscal year ending March 31. The high rejection rate underscores crypto firms’ difficulties in complying with the UK’s strict AML regulations, prompting some companies to exit the country.

UK FCA REJECTS 87% OF CRYPTO APPS

The U.K.‘s Financial Conduct Authority (FCA) just shut the door on 87% of crypto registration applications for failing to meet its anti-money laundering standards.

Out of 35 applications, only four made the cut.

The FCA’s not messing around… pic.twitter.com/szPP8RsI77

— Mario Nawfal’s Roundtable (@RoundtableSpace) September 6, 2024

The report states that out of 35 applications submitted between April 2023 and March 2024, only four companies—BNXA (a payments partner of Binance), a PayPal U.K. unit, and Komainu (a crypto custody joint venture of Nomura)—secured approval. 15 crypto applications were withdrawn, and 9 were rejected.

FCA said:

“Over 87% of crypto registrations were withdrawn, rejected, or refused for weak money laundering controls.”

Only 47 Firms Approved Out of 359 Applications Since 2020

Since the FCA began regulating anti-money laundering compliance in the crypto sector in January 2020, it has processed 359 applications, with only 47 firms successfully completing the registration process. Feedback from industry participants suggests that long wait times, limited feedback, and what some consider inconsistent treatment by the FCA have made the process especially challenging.

The prolonged waiting periods have led some crypto companies to exit the country in search of registration opportunities elsewhere, continuing to serve UK customers from abroad. In the past three years, the FCA has taken an average of 459 days to process each crypto firm’s registration.

Rejected applicants have criticized the FCA’s perceived lack of transparency and clarity regarding its expectations. In response, the FCA has defended its approach by highlighting that it offers detailed guidance to assist firms in understanding the registration requirements. The FCA’s strict standards ensure crypto firms follow strong AML and counter-terrorist financing (CTF) measures.

The FCA announced in June 2023 that it established a new “financial promotion perimeter” for crypto advertising to ensure that crypto ads in the UK are clear, fair, and not misleading. The regulator also observed that public awareness of potential crypto scams in the UK has increased, with 63% of consumers contacting authorities about a scam before investing in a project, marking a 5% rise from the previous year.

FCA to Gain More Control Over UK’s Crypto Landscape

The new legislation will give the FCA greater control over the UK crypto sector, though delays arise from the Labour government’s pause on crypto plans. As of September 2024, the FCA struggles to balance strict oversight with supporting innovation. Despite its commitment to high standards, recent data shows crypto registration applications failed to meet UK AML.

To assist potential applicants, the FCA has provided detailed feedback on the quality of applications, highlighting both effective and ineffective practices under the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017. This feedback helps firms prepare better applications and meet FCA requirements, potentially boosting future approval rates. Meeting the FCA’s expectations and upholding rigorous compliance standards will be crucial for current and prospective applicants to establish a presence in the UK market.