More On: Bitcoin
A wave of bitcoin businesses in the United Kingdom may be forced to shut down if they fail to register with the financial watchdog before a major deadline next week.
Firms providing crypto services in the United Kingdom must register with the Financial Conduct Authority, which is in charge of supervising how digital asset firms combat money laundering, as of March 31.
Last year, the regulator extended the deadline for enterprises on a temporary register to continue trading while seeking full license; once the deadline passes, the temporary register will be closed. Many crypto businesses have withdrew their applications, according to the FCA, since they did not match the required anti-money laundering criteria.
With only a few days until the new deadline, the status of companies on the temporary registry, such as Revolut, a $33 billion fintech firm, and Copper, a crypto start-up with former UK Finance Minister Philip Hammond as an advisor, is in jeopardy.
'It was a complete disaster.'
The FCA's management of the crypto registry has been criticized by many industry insiders.
The regulator, according to one lawyer assisting crypto companies on their applications, has been slow to accept applications and is sometimes unresponsive, a sentiment mirrored by other players in the sector.
"From the FCA's perspective, the process has been a total disaster," the lawyer told CNBC, commenting on the condition of anonymity owing to the sensitivity of the topic.
So far, only 33 crypto companies' applications have been authorized by the FCA, according to a spokeswoman. To date, more than 80% of the companies it has evaluated have either withdrawn their applications or been denied.
"We've seen a large number of cryptoasset businesses request for registration that don't fulfill the rules there to help ensure enterprises aren't used to move and or mask criminal finances," the official added.
"Applications that do not meet the expected threshold can be withdrawn." Firms who refuse to withdraw have the right to dispute our refusal, which includes going to court."
Why does it matter?
Tyler and Cameron Winklevoss' cryptocurrency exchange, Gemini, was one of the first to be approved by the FCA.
The licensing structure is vital, according to Blair Halliday, Gemini's head of U.K., since it assures clients that they're dealing with a company that has been well vetted.
"It was vital to get a crypto asset registry in place for crypto in this country," Halliday told CNBC. "It provided something to demonstrate as a fundamental differentiation for organizations who truly want to pursue regulatory clearances."
Lavan Thasarathakumar of the crypto sector group Global Digital Finance said the process has caused "a lot of unhappiness."
"It's been fundamentally too sluggish," Thasarathakumar said, adding that the FCA has a "big backlog" of applications for the register.
Even now, some businesses are withdrawing their applications.
B2C2, a London-based crypto trading firm, just removed itself from the FCA's provisional registry. B2C2's spot trading activity has been relocated to the company's U.S. entity from Monday. The firm's derivatives business, which is handled by an FCA-authorized subsidiary, is unaffected.
"We are committed to ensuring that this shift causes as little inconvenience as possible," a B2C2 representative told CNBC over Telegram. "We are working closely with our clients to ensure that they continue to have a flawless trading experience with us."
Firms that have had their applications refused by the FCA can appeal, but it is a lengthy procedure that may require going to court.
The FCA's decision to reject an application from the crypto exchange Gidiplus was recently upheld by a tribunal.
Is there a Brexit dividend?
The current regulatory trajectory of the United Kingdom, according to Mauricio Magaldi, global strategy director for crypto at fintech consultant 11:FS, puts the country at risk of sliding behind the United States, the European Union, and other regions.
President Joe Biden signed an executive order calling for government coordination on digital currency governance, while EU parliamentarians recently voted down a proposal to effectively outlaw bitcoin mining in the bloc.
"While other major jurisdictions see opportunity and danger, the United Kingdom emphasizes risk," Magaldi told CNBC. "By moving too quickly and narrowly, rules and deadlines create barriers for crypto enterprises, perhaps driving them out of the UK market."
Industry representatives are concerned that this will put the United Kingdom at a disadvantage as it competes to become a global leader in financial innovation post-Brexit. The country has a strong fintech industry, which last year attracted about $12 billion in investment.
However, if fast-growing fintechs like Revolut and Copper do not make it into the complete register, they may be compelled to shut down their crypto operations in the UK and relocate offshore. When CNBC contacted both companies, they declined to comment.
Companies like PayPal and Coinbase, who sell crypto services in the United Kingdom through subsidiaries in other countries, will be impacted.
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