Why is the FCA so reluctant to authorise crypto firms?
The UK’s crypto industry is facing an uphill struggle to get approval, hitting global competitiveness as well as commercial returns, writes Fergal Parkinson, Director of TMT Analysis.
Since January 2021, crypto firms have been required to apply for FCA approval under money laundering regulations in what seems like an attempt to bring the sector to heel; yet a year later, a staggering 88 per cent of applications from crypto firms had been rejected.
There have been rumours of crypto firms struggling to get approved under these Money Laundering Regulations and FCA data provided exclusively to TMT Analysis confirmed our suspicions – in the first 12 months we calculated that just 30 firms were approved from over 250 applications.
Currently, it appears as though the UK’s crypto industry is facing an uphill struggle to get approval, hitting global competitiveness as well as commercial returns.
What is behind the lack of success when seeking FCA approval? And, more importantly, what can firms do to secure authorisation?
Crypto firms are facing a difficult task to build credibility and convince regulators of their robust security measures. A perceived lack of trust is something potential crypto investors are concerned about too – our recent research revealed that the crypto market is missing out on 13m investors for this very reason.
Whilst enhancing awareness and understanding of crypto amongst potential investors will help to alleviate consumer concerns, in order to appease regulators crypto firms need to tackle security risks and showcase more stringent anti-fraud measures. Not doing so means crypto firms are in real danger of failing to fulfil their potential.
Nearly half of consumers believe FS providers don’t have strong enough identification measures in place to protect them – this is just one area where security improvements can be improved. It’s a simple yet effective solution, simultaneously fighting fraud and reassuring consumers and regulators that robust security measures are in place.
Using customers’ mobile phones to approve transactions and verify identities is one of the easiest methods to implement. 47 per cent of people have had the same mobile number for over a decade so it’s a vital part of our digital identity offering an accurate method to validate the user verification process, reduce fake accounts and prevent other security issues.
There have been a handful of FCA registrations in recent months but it’s clear that crypto firms need to take a different approach in order to meet the authorisation criteria. Whilst there is likely room for improvement elsewhere in these organisations, relatively minor yet hugely effective adaptions to security processes are likely to be the most effective steps to boost chances of regulation.
The views and opinions expressed are not necessarily those of AltFi.