The Financial Conduct Authority has announced that it has set up a Temporary Registration Regime for existing cryptoassets firms, who have applied to be registered with the FCA, to continue trading.
The FCA become the anti-money laundering and counter-terrorist financing supervisor for cryptoassets firms in January 2020. As such, it required that all ‘existing cryptoassets businesses’ to comply with Money Laundering Regulations and register with the FCA by 10 January 2021.
With the deadline fast approaching, and several applications yet to be reviewed, the FCA has rolled out a Temporary Registration Regime for those businesses who have applied for registration before 16 December 2020, but whose applications are still being assessed. This will allow those businesses to continue to trade until 9 July 2021, pending the FCA’s determination of their application.
In an interesting move from the Regulator, the FCA has advised that customers of cryptoassets firms that have not applied to the FCA, despite being asked to do so, withdraw their assets before 10 January 2021. Firms that did not apply by 15 December 2020 will not be eligible for the temporary registration regime and must return the cryptoassets to their customers and stop trading by 10 January 2021.
This temporary regime has been introduced, in part, due to delays by the FCA in assessing applications. The fact that the FCA admits it was not able to assess and register all firms that applied for registration, due to the “complexity and standard of the applications” – as well as limited capacity owing to the pandemic – serves to show how crypto remains a grey area for financial regulators. As well as being complex, crypto is also global and evolving, making effective regulation or controls very difficult to implement. As the FCA notes, even those customers of registered firms may not have access to the Financial Ombudsman or the Financial Services Compensation Scheme if they lose their assets.
In many ways, the surprising advice given by FCA – to withdraw assets from firms that failed to register – before 10 January 2021, could be seen as an effort from the Regulator to impart customer protection in an area that it is so far unable to fully regulate.
For now, the FCA does not have consumer protection powers for cryptoassets activities of firms. However, as crypto becomes more mainstream and widespread, regulation seems inevitable. The challenge will be to build a regulatory framework that both understands and can adapt to the highly speculative and fast-paced world of crypto. Regulators from across the globe will likely have to collaborate to build such a framework.
At CUBE, we look forward to tracking the regulatory developments as they evolve over 2021 and into the future.