British ambitions to become a global crypto hub are being hindered by a conservative regulatory approach that has seen applications for registration by crypto firms drop by 51% over the past three years.
Figures provided by the Financial Conduct Authority (FCA) to lawyers Reed Smith from a Freedom of Information request reveal that just 29 applications were received in the last year (May 1 2023 - April 30 2024), compared with 42 and 59 in the two years prior.
Just seven applications were received in Q1 2024 - the latest period for which complete data is available - the joint second lowest quarter in the last three years.
With the average time taken to approve applications within the last three years standing at 459 days, experts have questioned whether the speed of FCA approval could be undermining the UK’s broader efforts to become a global crypto hub.
A report by the UK's National Audit Office in December found that a shortage of crypto skills meant the FCA took longer than planned to register crypto-asset firms under money laundering regulations in 2021, and it still finds it difficult to recruit and retain staff with these skills.
Meanwhile, in the last three years, 186 firms have withdrawn applications, suggesting a growing number are being turned off by the FCA's tough rules on financial promotions. Since the financial promotions rules came into effect in October 2023, the FCA identified 1,010 breaches in the first seven months to April 2024
Commenting on the data, Brett Hillis, Partner at Reed Smith, says the time taken to approve an application for registration might take about as long as an application for a full banking licence, a factor that he describes as "frankly astounding".
"If we expect firms to apply for full authorisation further down the line when the regulatory perimeter expands then something clearly needs to change to speed up the process, especially if London wants to become a major centre for digital assets.
“If it’s the case that applications are falling because crypto firms have essentially given up waiting and started looking abroad, this should send a clear warning about London’s competitiveness. Firms aren’t going to wait forever for approval, particularly if another jurisdiction seems to offer a comparatively quick process, with access to a comparably sized or even larger market. Effectively, we risk the UK’s crypto market being challenged from without by a growing number of increasingly crypto-friendly regimes and also from within by a remarkably slow approval process."
Update: An FCA spokesperson provided comment on this story: “We offer significant support for firms interested in applying and register those that demonstrate they can meet the required standards. We expect firms to be fit and proper and have adequate systems to identify and prevent flows of money from crime. These standards we hold firms to are essential to help protect people and the integrity of our financial system.”