The UK financial market regulator, the Financial Conduct Authority (FCA), has provided a guideline for crypto firms that want to receive regulatory approval. The regulator noted that out of the over 260 applications determined as of January 2023, only 15% were approved. 11% of the applications were rejected, while 74% of the firms refused or withdrew their application.
FCA issues guidelines for firms seeking regulatory approval
The FCA has provided feedback on what comprised good and poor applications. The regulator said that these firms needed to understand the regulatory framework and appoint a Money Laundering Reporting Officer (MLRO) to monitor compliance. The MLRO should be conversant with the crypto industry and be actively involved in the application process.
Good applications should also have detailed information about the company. The application should be accompanied by a detailed business plan, including the details of business partners, flow-of-funds charts, business model, source of liquidity, and accurate descriptions of products and services.
The applicant should also provide a detailed overview of how they manage and assess risk. They should demonstrate a deep understanding of the risks that come from crypto investments and outline how these risks will be mitigated using the controls that are already in place. The FCA added that applications that display a shallow understanding of anti-money laundering (AML) frameworks and weak governance would be rejected.
The FCA also requires crypto firms to have compliance staff and monitor on-chain transactions. The firms should also be willing to flag and report any suspicious transactions. The staff of these companies must also be trained on the business model and adherence to anti-money laundering and counter-terrorism financing (AML/CTF) laws. Compliance with sanctions is also required.
Additionally, companies that make changes after submitting their applications should ensure they inform the regulator of the same to avoid having the application rejected. The FCA has also warned crypto firms from using their application to promote their products and services. Firms are barred from using language that portrays the application as an endorsement from the FCA.
“Applicants must recognize that being registered is not a one-off formality or a tick-box exercise without any further obligations or interaction with the FCA,” the regulator added. The FCA expects that the feedback will guide crypto firms to ensure their application process is simple and efficient.
FCA plans to work with global regulators
The FCA has also said it was willing to work with global regulators to ensure compliance in the cryptocurrency sector. Most crypto companies provide services in multiple countries, and collaboration with global state agencies could strengthen regulations.
Despite the strict requirements for applicants, the FCA has already approved the applications of some of the largest players in the cryptocurrency sector, including Crypto.com, social trading platform eToro, and liquidity provider Wintermute Trading. In the past, the FCA has said that crypto firms that offer their products and services in the UK without regulatory approval will face criminal charges.
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