Around 85 per cent of crypto firms failed to meet minimum regulatory requirements when applying for registration with the Financial Conduct Authority (FCA), according to the watchdog.
In a letter to the Treasury Committee, Sarah Pritchard, FCA executive director of markets, said “around 85 per cent of those cryptoasset firms that applied for registration were unable to demonstrate they met the required, minimum standards” such as anti-money laundering and counter-terrorist financing regimes.
The regulatory body identified “significant failures” in relation to key controls such as customer due diligence, risk assessments, and transaction and ongoing monitoring.
“In many cases, key personnel lacked appropriate knowledge, skills and experience to carry out allocated roles and control risks effectively and were unable to evidence they met the standards for registration,” the FCA said.
Commenting on the correspondence, Harriett Baldwin, chair of the Treasury Committee, said: “We are in the middle of an inquiry into crypto regulation and these statistics have not disabused us of the impression that parts of this industry are a ‘Wild West’.”
During the evidence session, the FCA revealed that a significant proportion of crypto firm applications were of a poor standard, with only five per cent being progressed on the first attempt.
The regulator added that 73 per cent of applications were withdrawn or failed, which was the most significant withdrawal or failure rate they have seen when taking on a new remit.
The FCA clarified that a crypto firm is not necessarily engaging in criminal activity just because it is not able to satisfy the regulatory standards. However, in a small number of cases, the financial regulator identified likely financial crime or direct links to organised crime.
The news comes as the UK attempts to establish itself as a leader in cryptocurrencies.
City minister Andrew Griffith recently reaffirmed the government’s aim to be “the home of well-regulated [and] technologically-advanced financial systems” in a Treasury committee hearing.
Former Chancellor Philip Hammond – who was appointed chair of crypto firm Copper today – told the Financial Times that “the UK needs to be leading in this area post-Brexit”.
“It’s allowed itself to slip behind,” he said. “Switzerland is further ahead. The EU is also moving faster. There has to be appetite to take some measured risk.”
