In a concerning discovery, a new report from the Financial Conduct Authority (FCA) reveals that a staggering 85% of cryptocurrency firms who applied for a license with the regulator failed to meet its minimum standards.
Published on Jan. 26, the report, which the Treasury committee of MPs commissioned, exposed a worrying lack of compliance with anti-money laundering and counter-terrorist finance requirements.
Even though the U.K. has not established a structured control system for digital currencies, the FCA has implored any companies dealing with crypto to enroll in its anti-money laundering system to keep providing services in the country.
Crypto confessions: what the FCA found out?
At the recent sitting of the Treasury Committee, the Financial Conduct Authority (FCA) revealed that a significant proportion of recent applications from crypto firms were found to be of a “poor standard,” with only 5% making it through the initial assessment process.
Overall, the FCA reported that 73% of applications had been withdrawn or rejected, a far higher rate of failure than when the regulator took on a new remit.
In some extreme cases, the FCA identified potential links to financial crime or organized crime and promptly referred these firms to the relevant law enforcement agencies.
Moreover, the regulator found that several key personnel in some firms “lacked the appropriate knowledge, skills, and experience to carry out their roles and effectively control risks.”
“We are in the middle of an inquiry into crypto regulation, and these statistics have not disabused us of the impression that parts of this industry are a ‘Wild West.’”
Harriett Baldwin, Treasury Committee.
The troubled relationship between crypto firms and FCA
Crypto firms and the Financial Conduct Authority (FCA) have had a turbulent relationship over the past few years.
Since the FCA took over regulation of crypto assets in the U.K. in January 2020, the two sides have been at odds over the FCA’s stance on the sector.
The FCA has taken a hard line on crypto firms, with strict regulations on conducting business, including preventing them from offering certain services. This has led to several crypto firms being fined heavily by the FCA for failing to comply with its rules.
Despite this, the FCA has said that it is open to innovation and willing to work with crypto firms to ensure appropriate regulations are in place.
However, the FCA has been criticized for being slow to react to the crypto industry and needing to clarify how crypto firms should be regulated. As a result, many crypto firms have chosen to focus on jurisdictions with more welcoming regulatory environments.
The road ahead
Crypto firms have been one of the least exemplary groups in adhering to regulatory standards. This has become increasingly apparent in recent years as governments worldwide have introduced stricter regulations on the cryptocurrency space.
In the past few years alone, several large crypto firms were slapped with hefty fines from regulators for failing to comply with KYC and AML policies. Coinbase, one of the largest cryptocurrency exchanges, was fined $6.5 million by the US Commodities and Futures Trading Commission for noncompliance with regulations in March 2021.
Regulators are serious when they say they’ll punish those who don’t adhere to their standards. Hence, crypto firms should take a proactive approach to comply with regulations. Failing to do so could have serious repercussions, not only in terms of fines and punishments but also in terms of their reputation.