Back in 2017, when peer-to-peer lending was all the rage, some of the very biggest platforms in the space were forced to wait nearly two years before being granted full authorisation by the Financial Conduct Authority, the UK watchdog.
They were, at least, able to continue operations while they waited; the same may not be true for startups in the cryptocurrency sector.
Recent reports have revealed that 160 businesses have submitted applications to be admitted to the Financial Conduct Authority’s ‘cryptoasset register’. Just three of them – crypto wallet firm Ziglu and exchange operators Archax and Gemini – have been approved so far.
The FCA has been quite blunt in laying out the consequences of not being registered, stating on 10 January 2020 that businesses that had not registered by the same date the following year would have to cease trading.
What’s more, it does not appear that the regulator has much bandwidth to extend the deadline, because it is HM Treasury, not the FCA, which is ultimately responsible for anti-money laundering and terrorist financing rules.
The question now is what all those startups will do if no grace period is forthcoming.
European crypto exchange EXMO is one of the many applicants awaiting word from the regulator. Sergey Zhdanov, who is both COO and CFO of the startup, said its Estonian entity is the back-up plan – and that the exchange is also in the process of opening an entity in Gibraltar.
“However, we want to stay in the UK a lot. Hope [the FCA] will authorise us in time,” Zhdanov added.
Another person running a startup in the crypto space said he would “head for the hills offshore” if his authorisation didn’t come through in time.
A third source, cofounder of a popular payment services firm in the crypto space, said it would fall back on a licensed Swiss entity if its UK authorisation failed to come through.
The job at hand is a delicate one for the FCA. Some industry insiders reckon there are as many as 400 firms which ought to apply to be on the crypto register.
To be sure, there are almost certainly a good number of startups on that list that ought to stop trading.
On the other hand, there are at least a dozen ‘blue-chip’ crypto outfits like Google Ventures-backed Blockchain.com, which employs hundreds of people – having increased headcount by 40% during the pandemic – and which is also yet to appear on the crypto register.
Perhaps the even more important consideration for the regulator here is that suffering a mass exodus of crypto startups so soon after the end of the Brexit transition period hardly paints a promising picture of a globally connected Britain. Crypto is, after all, an inherently global industry.
Unlike staff in the crypto sector, readers shouldn’t have to wait long for answers.
One source with knowledge of the applications process told Sifted that the FCA would likely be contacting all unregistered firms during the course of this week to explain how it is “planning to deal with the deadline”.
Given the extent of the backlog of the applicants, that may have to be a blind carbon copy job.