The Financial Times recently reported that crypto firms are increasingly shying away from the UK due to burdensome and time-consuming regulatory processes. According to law firm Reed Smith, registrations for crypto exchanges and custodian wallet providers with the Financial Conduct Authority (FCA) have seen a significant drop of over 50% in the past three years. This trend signals a growing frustration among crypto businesses with the regulatory environment in the UK.
A recent Freedom of Information (FOI) request by Reed Smith revealed that the FCA received only 29 registration applications between May 2023 and April 2024. This number marks a steep decline from 42 applications in the previous year and 59 applications the year before that. The first quarter of this year saw just seven applications, one of the lowest quarterly totals in three years. The decreasing number of applications indicates the increasing dissatisfaction of crypto firms with the slow and complex processes of the FCA.
The average approval time for crypto registration applications with the FCA stands at a staggering 459 days, with some firms waiting over two years for a decision. This lengthy process has led to a growing exodus of crypto businesses seeking more efficient regulatory environments abroad. Despite processing over 300 applications since 2020, the FCA has only approved 45 firms, reflecting a meager acceptance rate of around 15%.
Critics argue that the FCA’s stringent criteria and rigorous scrutiny have made the UK an unattractive destination for crypto firms. Many prominent exchanges have opted to move their operations to more crypto-friendly jurisdictions, citing concerns that the UK is applying outdated regulatory frameworks to a rapidly evolving industry. This approach is said to stifle innovation and hinder the growth of the crypto sector in the country.
The trend of crypto firms turning away from the UK poses a threat to the country’s ambitions of establishing itself as a global hub for digital assets. A total of 186 firms have withdrawn their applications with the FCA over the past three years, highlighting the challenges posed by the regulator’s approach. While the number of withdrawals decreased by 78% in the last year, the overall trend indicates a growing frustration within the industry.
The FCA has defended its cautious approach, prioritizing market integrity and consumer protection over the speed of processing applications. However, the mounting discontent within the industry suggests that without significant reforms, the UK may lose its competitive edge in the global crypto market. It is imperative for the regulatory body to address the concerns of crypto firms and work towards creating a more welcoming environment for digital asset businesses in the country.