A Hasty Step or How FCA Unwelcomes Crypto Startups in the UK

The United Kingdom’s FCA’s permission for crypto companies to operate within the UK’s legal framework gives us a clear sign that the crypto will no longer be untouched and unregulated.

At the same time, the obstacles the startups have already faced raises questions on how to proceed with obtaining first-ever licenses that enable companies to legally conduct their crypto business without fear of being fined or prohibited. The major message received from FCA is the issuance of temporary licenses for companies seeking to become licensed crypto-asset providers. The published list of authorized firms also brings up the issue for those that applied or were thinking of applying. 

According to the FCA’s schedule, the deadline for crypto companies to acquire the license was the 10th day of January 2021. Therefore, we can easily define an unlicensed crypto-asset services delivery as illegal. Soon we will observe all the relevant implications for non-compliant companies. To meet the abovementioned deadline, companies were recommended to apply for the license on or before the 31st day of July 2020. In such a way regulator gave the time for companies to prepare the appropriate registration documents, including AML policies and procedures as well as tuning relevant systems to ensure its compliance with AML/CTF rules.

As the deadline was getting closer, the applicants started worrying whether FCA was ready to grant crypto-licenses at all. At the end of the day, on the 16th day of December 2020 FCA officially announced its intention to issue temporary crypto-asset licenses for applicant companies. The list of lucky ones was not as long as expected but there were reasons for that.

FCA’s "client first" approach

10th day of January 2020, the FCA was granted the authority to regulate crypto business in the United Kingdom. It became the superior supervisor of AML/CFT rules to be followed by crypto-asset firms. They were required to be registered with the FCA by 10 January 2021.

The deliberate research shed light on that authorization list. It emerged that companies, who had informed the FCA that they were already involved in providing crypto-asset services before the 10th day of January 2020, were given the interim permission to conduct business. Seems like a fair and reasonable step from the regulator. In such a way, the FCA leaves the business uninterrupted and ensures smooth service delivery. At the same time, the businesses that registered and started providing crypto services in the UK after the 10th day of January 2020 and met the application deadline on the 31st day of July 2020 were left behind the temporary authorization list. Ipso facto, the mentioned companies received a blank cheque from FCA to make their business without any financial and regulatory concerns for their assets.

Another issue for the FCA is to deal with is a bunch of companies left out of the temporary authorization list. After the 10th day of January, we could observe a graded companies’ attrition from the UK as they are no longer welcome here. Alternatively, they will probably seek another crypto licenses in offshore jurisdictions.

Since “appearing on the Temporary Registration Register does not mean that the FCA has assessed them as fit and proper, nor that the FCA has determined their application for the purposes of the Money Laundering Regulations”, a direct response from the other companies seems to be a reasonable step. It is still up for them what to do next. Those who met the deadline have the opportunity to take a class-action lawsuit against FCA to secure their rights to be included at least on the Temporary Registration Register. The more legal pressure set on the FCA the more chances for the companies to be transferred from the grey zone to the full economically profitable legal framework.

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