This week, Britain's financial services regulator admitted defeat in its attempt to register all of the country's crypto assets by January 10, too late for firms that had already increased costs as they prepared for the deadline while they waited to register.
As early as January 2020, the Financial Conduct Authority (FCA) announced that after 10 January 2021, no firm would be allowed to engage in "crypto assets" in the UK unless it was registered. But less than a month before that date, the FCA's website lists only four registered firms, two of which are subsidiaries of Gemini. In the last three months, zero new registrations have been processed.
On December 16, the FCA backtracked, emailing more than 100 undocumented applicants that it "may not have time to complete the assessment by January 9." In an email, the FCA stressed that their applications had not yet been processed and they had not been assessed as "appropriate and appropriate."
Too late to back down, the FCA has raised fears that a large number of firms will be forced to temporarily stop trading in January. This forced firms to accept unnecessary costs now to prepare and protect themselves from such a result.
"We're going to lose our entire customer base," said the boss of the over-the-counter crypto-trading service based in London's Mayfair, who asked for anonymity, something we probably won't be able to recover from."
For the sole purpose of preparing for such an opportunity, he "organized a parallel offshore structure and appointed an agent for the UK." The costs of these measures were calculated in six figures.
Even before December 1, the FCA was actively sticking to its January deadline. She declined to answer any questions about the article, other than commenting: "We are working diligently to process applications by January 10, 2021, and continue to review the progress we have made as this date approaches."
Although Copper's digital asset storage service, also based in Mayfair, London, filed its application more than nine months ago, marketing director Tyler Kenyon says the company is still in a slow dialogue with the FCA. Meanwhile, there were long periods of "radio silence" interrupted from time to time by new questions.
Cryptocurrency broker BC Bitcoin also applied quickly and diligently. Sales manager Tyler Smith said he also tried to comply with FCA requirements but did not receive a verdict on his confirmation.
Kenyon says he has some sympathy for the FCA because in his understanding the Treasury - the UK Treasury - was responsible for setting the January deadline. The coronavirus pandemic may have caused some delays. He also suspects that FCA employees should have learned about crypto assets at work and by the hour. Perhaps that is why some applicants were asked to submit up to 80 documents and conduct a three-hour interview, to the surprise of experienced compliance consultants.
The FCA keeps some interest groups informed of its slow progress. According to people with access to this connection, the regulator received 160 applications. He acknowledged that he did not know how many firms had to apply, except that the number might be several hundred. That means he doesn't know how many firms could break his rules by continuing to trade after July next year. He also refused to say what would happen to the firms that would do so.
The FCA blamed its slow progress on the low filing standard. Less experienced firms may have underestimated the complexity of regulatory requirements. London-based consultancy Bovill, which provides financial regulatory advisory services, commented that they covered "business plans, organisational schemes, IT arrangements, policies and procedures, and governance provisions." Kenyon says some probably thought it would be an exercise with ticks, but they were wrong.
Firms and regulators face a real and serious threat of money laundering and other illegal activities. "It's safe to say that there is a relatively high risk of money laundering in the virtual asset space," Boville said. Rapid growth has brought its own risks. Firms that are expanding rapidly may face compliance obligations that they were not prepared for.
But if this explains the FCA's failure to approve more than four credible claims, it only means that bona fide firms have been forced to take costly precautions because the deadline was drawn only because of the shortcomings of their peers.
In the end, the FCA granted temporary registration and effectively extended the period because of the extent of the damage it would cause, forcing legitimate crypto-asset companies to suspend trading. Kenyon talks about the consequences of the temporary shutdown: "The consequences will be significant because many firms rely on our infrastructure."
The head of mayfair's over-the-counter division explains that a temporary shutdown would require staff cuts in the short term, followed by costly hiring. The impact on customer relations would probably put an end to the business.
This company observes its costly precautions in case of "new lying police" during the registration process.
If the FCA does not accelerate its progress in the coming months, British crypto-asset firms could face another tense countdown next summer - or another turnaround in the regulatory framework.