Is the City regulator becoming more comfortable with crypto?
This week the Financial Conduct Authority (FCA) has authorised both Genesis Custody and Zumo as registered cryptoasset businesses.
The regulator looks to be approving more crypto firms after previously extending the end date of the Temporary Registrations Regime (TRR) for existing cryptoasset businesses from 9 July 2021 to 31 March 2022 to allow firms to carry on with their business while it continues its assessments.
The FCA has previously said that a significantly high number of businesses are not meeting the required standards under the money laundering regulations, resulting in an unprecedented number of businesses withdrawing their applications.
Last week, City watchdog chief executive Nikhil Rathi told the Treasury Committee there is a backlog in queues for authorisations and that FCA is working hard to address these by hiring more staff and digitalising the approval process.
He said the FCA has more “grit in the system” after learning that if it authorises firms that are not adequately meeting standards, that can cause quite a lot of issues further down the road.
Rathi said that the majority of crypto firms have either withdrawn their application or have been refused by the FCA due to links to money laundering and organised crime.
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“If I look at the work we do with crypto exchanges where firms come to us for money laundering registration, the reality is nearly 90 per cent of those have ether withdrawn their application, or we’ve refused as we see a serious link to money laundering and serious organised crime being propagated through crypto exchanges and a culture in many of those organisations that does not respond to the level of systems and controls we would need from those firms as they’re growing,” he said.
“We’ve allowed 17 through but there’s been very challenging sets of conversations and I think that’s consistent with the posture we’re adopting with the gateway…
“There will always be a balance to strike, we always have to make sure we let in firms that we think add positive value to the system but also try to deliver the more assertive posture we said we will deliver.”
However, one crypto business told Peer2Peer Finance News that Rathi’s “grit in the system” is causing financial hardship and that criminality is not disproportionate in crypto.
The unnamed business owner said that the FCA does not understand the crypto sector and is hence on the lookout for a specialist.
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“He’s (Rathi) actually admitted putting grit in the system, causing financial hardship for many people,” the business owner said.
“Criminality is everywhere but there’s no disproportionate amount of criminality in crypto than in any other financial services sector. It’s all about proportionality and the FCA is treating crypto disproportionately.
“They just don’t understand it. And there’s no talent in the FCA that understands it. I think they’ve admitted they don’t have the calibre of personal.”
The FCA has repeatedly warned of the risks of investing in crypto and has highlighted that a balance is needed between innovation and protecting customers.
Last year, the Treasury consulted on bringing certain cryptoassets into the scope of regulatory financial promotion and it is due to release this consultation paper in the fourth quarter of 2021.