In response to increasing criticism of its stringent registration requirements for crypto firms, the UK’s Financial Conduct Authority (FCA) defended its approach on October 21, emphasizing that these measures are essential to safeguard the integrity of the financial system.
FCA Justifies Tough Crypto Registration Rules, Citing Risks and Illicit Activities
Addressing concerns over the high rejection rate of crypto firm applications, Val Smith, head of payments and digital assets at the FCA, stressed that maintaining high standards is critical for the industry’s growth and competitiveness. She clarified that the FCA’s rejections are not arbitrary.
“Setting and maintaining standards people can trust is a key part of any thriving, competitive sector,” said Smith, noting the severe risks posed by the crypto industry, such as terrorism financing, organized crime, and human trafficking.
Smith firmly rejected any calls to ease the regulatory framework, warning that reducing registration standards could compromise market security, leading to a “race to the bottom.”
The FCA collaborates closely with government bodies, industry leaders, and international regulators to build a strong foundation for the UK’s emerging crypto sector.
Smith explained that the FCA assesses not only a firm’s internal controls and operations but also the environment they operate in and the people managing them. Crypto firms, she noted, are held to the same rigorous standards as traditional financial institutions.
“Our decision on whether to register isn’t just based on the controls and systems firms have in place. We look at the environment they operate in, the people involved, and the customers they aim to reach,” she said, addressing the unique challenges in regulating crypto businesses.
Crypto Firms Struggle to Meet FCA Standards Amid Crackdown on Illicit Activities
Despite the FCA offering pre-application meetings and continuous support, many crypto firms still find it difficult to meet the regulator’s high standards. According to the FCA’s annual report released in September, only 13% of the 35 crypto firm applications were approved last year, while 87% were either rejected, withdrawn, or denied.
This reflects the stringent regulatory environment that crypto firms are navigating in the UK.
In a landmark case, the FCA charged London resident Olumide Osunkoya on September 10 for unlawfully operating crypto ATMs without FCA registration, marking the first prosecution of its kind in the UK. This action is part of the FCA’s broader efforts to combat illegal crypto ATMs linked to money laundering and other criminal activities.
Earlier, in May 2023, the FCA conducted inspections at locations in Exeter, Nottingham, and Sheffield suspected of hosting unregulated crypto ATMs. These efforts are part of the regulator’s crackdown on illegal activities within the crypto space.
The FCA continues to review the evidence from these operations and is prepared to take further action as needed.
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