More than 150 UK crypto firms are stuck in regulatory limbo as a crucial deadline approaches

The United Kingdom’s Financial Conduct Authority (FCA) has received 160 applications for its crypto-asset register, which will determine which crypto firms are eligible to operate in the country after January 10.

With the deadline just over a month away, only four entities have been approved.

People familiar with the matter told The Block that the cryptocurrency working group of the Association of Professional Compliance Consultants — a well connected local trade body — was briefed by the FCA about the extent of the backlog.

Minutes from a Zoom meeting of the working group on November 23 state that the regulator “confirmed that they have issues with the authorisations.” They also suggest that 55 applications submitted from June 2020 onwards have not yet been assigned to a case officer. 

The FCA took over in January as the anti-money-laundering and counter-terrorist financing watchdog for crypto companies that operate in the UK. The regulator later advised firms to submit their applications by June 30 to help ensure they would be processed on time. 

In early November, The Block reported that some in the industry were growing concerned about a potential backlog of registrations. At the time, a number of well-known crypto businesses including Wirex and eToro confirmed they were awaiting approval.

“We are working hard to process applications before the 10 January 2021 deadline and continue to review our progress as this date approaches,” said an FCA spokesperson.

The three companies which have already won approval for the register are crypto payments app Ziglu and the exchange operators Archax and Gemini. Gemini has acquired two separate registrations.

The sheer number of companies in limbo is surprising and appears to have some firms mulling moves overseas. Sector experts had already predicted that the regulator’s crypto derivatives ban, announced in early October, could trigger an exodus to more crypto-friendly jurisdictions.

“I’ve had six firms that we look after that have said, ‘You know what, let’s go to Switzerland, let’s go to Malta,’” said one source, who spoke on the condition of anonymity.

“I would have thought with the Brexit transition period ending this would have been a bold statement [from the FCA] to say, ‘We can do this properly,’” the person added.

People familiar with the registration process told The Block that the backlog is due to both a lack of manpower and expertise at the FCA. “Applicants are being subjected to three-hour-long interviews over their anti-money laundering procedures over the phone and there’s an average of about 80 document requests per application,” said one source.

With so many companies awaiting approval and so little time left on the clock, some have speculated that the regulator will have no choice but to extend its January 10 deadline. But such an extension would be practically difficult if not impossible.

That’s because the regulations under which the FCA has taken the authority as the crypto industry’s AML/CFT supervisor stem from legislation for which HM Treasury, the government agency in charge of economic policy, is responsible. The FCA does not have the power to waive, amend or extend them, according to a person with knowledge of the matter.

“It’s statutory. It’s written in stone by the HM Treasury,” said one source. “[HM Treasury] won’t move it. They’ve got other things to do and they’ve never tended to be flexible towards financial services.”

The source added: “The only contingency plan there can be is to go down and light a candle in your local church and cross your fingers.”