With the notable exception of security tokens, the majority of cryptoassets are still unregulated in the UK. However, the FCA has been acting as the anti-money laundering and counter-terrorist financing (AML/CTF) supervisor of various types of UK cryptoasset business since 10 January 2020.
Certain types of cryptoasset businesses operating in the UK before 10 January 2020 were required to register with the FCA by 9 January 2021 pursuant to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) in order to carry on their business. As a consequence, since that date, new businesses wishing to carry out certain cryptoasset activities in the UK have been required to register with the FCA before commencing business.
These activities fall into two categories:
- Cryptoasset exchange provider
A firm or sole practitioner who by way of business provides one or more of the following services, including where the firm or sole practitioner does so as creator or issuer of any of the cryptoassets involved, when providing such services:
- exchanging, or arranging or making arrangements with a view to the exchange of, cryptoassets for money or money for cryptoassets;
- exchanging, or arranging or making arrangements with a view to the exchange of, one cryptoasset for another, or
- operating a machine which utilises automated processes to exchange cryptoassets for money or money for cryptoassets.
This includes Cryptoasset ATMs, Peer to Peer Providers, Issuing new cryptoassets (ICOs or Initial Exchange Offerings).
- Custodian Wallet Providers
A firm or sole practitioner who by way of business provides services to safeguard, or to safeguard and administer:
- cryptoassets on behalf of its customers; or
- private cryptographic keys on behalf of its customers to hold, store and transfer cryptoassets, when providing such services.
In between the MLRs coming into force and the original registration deadline of 9 January 2021 the FCA introduced a Temporary Registration Regime (TRR) because so few cryptoasset businesses had successfully completed the FCA registration process. This allowed firms who had applied before 16 December 2020 to continue trading whilst their applications were still under consideration. However, many firms failed to meet the required standards by the deadline on 9 January 2021, so the TRR was extended until 31 March 2022.
Some cryptoasset businesses have been critical of the FCA’s approach to the registration process under the AML/CTF regime with claims of ‘moving the goalposts and a lack of understanding of how crypto businesses operate in the real world.
So far only 17 cryptoasset business have managed to successfully negotiate the registration process. A list of these can be found on the FCA’s website Registered Cryptoasset Firms (fca.org.uk). Over 200 applications are currently pending, and many more have been rejected or withdrawn. The FCA publishes a list of unregistered businesses that appear to be trading in the UK Unregistered Cryptoasset Businesses (fca.org.uk).
There is certainly a global trend of increased regulation for cryptoasset businesses as it seems as though they are here to stay for the long-term, but it is clear that this needs to be coordination between the international regulators to create a harmonised structure.
Some cryptoasset businesses have reacted to increased regulation in some jurisdictions (such as the UK) by moving all or part of their trading businesses to jurisdictions where most recent anti-money laundering standards (5MLD) are yet to come into force (e.g. Estonia for EU trading and the British Virgin Islands for rest of the world trading), but this is likely to be only a temporary solution to being regulated.
Until there is more co-operation on appropriate international standards for cryptoasset businesses, global regulatory differences are set to endure.