Applications for registration as a cryptoasset exchange or custodian wallet provider have fallen by 51 per cent in the last three years in the UK, according to new data released by the Financial Conduct Authority (FCA).
FCA figures reveal that it only received 29 applications last year (1 May 2023 until 30 April 2024), compared with 42 and 59 in the two years prior. The data comes after global law firm Reed Smith made a freedom of information (FOI) request, as it looked to assess the UK’s ambition to become a crypto hub.
It found that only seven applications were submitted in Q1 2024 – the latest period for which complete data is available – the joint second-lowest quarter in the last three years.
So what has caused a reduction in applications? With the average time taken to approve applications within the last three years standing at 459 days, Reed Smith explains that some experts are questioning whether the speed of FCA approval is undermining the UK’s efforts to become a global crypto hub.
It also found that 186 firms have withdrawn their applications in the last three years alone, although the number has fallen by 78 per cent in the last year when compared with 2021-2022. In the last year, 20 firms withdrew applications for registration, compared with 73 in 2022-2023 and 93 in 2021-2022 These findings suggest a growing understanding of the FCA’s expectations amongst firms.
Is progress made progress enough?
There are signs that the FCA’s approval process is improving over time. In the last year, the average time taken to approve applications for registration was 311 days – compared with 497 in 2022-23 and 479 in 2021-2022.
Cumulatively since 2021, the FCA has spent the equivalent of 25 years assessing crypto applications
Since the financial promotions rules came into effect in October 2023, the FCA identified 1,010 breaches in the first seven months after May 2023.
Brett Hillis, partner at Reed Smith
Brett Hillis, partner at Reed Smith, commented: “The Herculean effort that the FCA has put into identifying breaches of the financial promotions rules shows unequivocally that the regulator takes its responsibility to protect consumers incredibly seriously.
“Looking at the time taken to approve applications, the question is not whether the FCA is being thorough, but whether its processes are too slow. Balancing consumer protections with the promotion of innovation is always tricky – some might say you should not balance them at all. But it does seem that even though approval times are falling, the time taken to grant approval remains something of a drag on the UK’s broader ambition to become a crypto hub.
“Put in context, the time taken to approve an application for registration might take about as long as an application for a full banking licence, which is frankly astounding. If we expect firms to apply for full authorisation further down the line when the regulatory perimeter expands then something clearly needs to change to speed up the process, especially if London wants to become a major centre for digital assets.”
Is the FCA risking the UK’s crypto hub position?
Hillis also discussed the risk if approval times remain as long as they currently are: “If it’s the case that applications are falling because crypto firms have essentially given up waiting and started looking abroad, this should send a clear warning about London’s competitiveness. Firms aren’t going to wait forever for approval, particularly if another jurisdiction seems to offer a comparatively quick process, with access to a comparably sized or even larger market.
“Effectively, we risk the UK’s crypto market being challenged from without by a growing number of increasingly crypto-friendly regimes and also from within by a remarkably slow approval process.
“The good news is that the falling number of applications suggests that firms are now much better acquainted with what the regulator expects. This can only be a positive development and would also explain the fall in approval times as the FCA has to spend less time wading through poor-quality applications. Clearly, though, there is scope to speed up further.”
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