Crypto regulation may be coming to the US, but if it's anything like what's happening in Europe, the process is going to be tricky.
In the UK, a looming deadline to register digital asset businesses has prompted some companies to say they plan to leave the country, while others face uncertainty over whether they will be allowed to continue operating.
The UK's Financial Conduct Authority (FCA) plans to suspend temporary registrations for cryptocurrency companies on April 1, seeking to bring companies into full compliance with regulations covering anti-money laundering, anti-terrorist financing and other standards.
Of the more than 100 companies that joined the temporary regime, 33 have registered. A dozen companies remain in the published list of cryptoactive businesses with temporary registrations. The operations of these 12 companies are in jeopardy: the FCA has said they can continue to operate until April 1 while their applications are pending.
The FCA on Wednesday extended the deadline for a small number of companies, including those that are appealing regulatory agency decisions.
Some big European crypto companies are now in limbo, including Revolut, a digital bank and one of the most prominent European fintechs. Another is Copper, an institutional trading and custodian firm whose partners include
state street
(ticker: STT).
Sources familiar with the matter said Barron's that Revolut and Copper are among the companies that will be allowed to continue operating after the April 1 deadline. Uncertainty remains for others.
โThere is a complete lack of clarity about what happens to clients of companies that are not on FCA registration by the cut-off date,โ said Nick Jones, CEO of Zumo crypto wallet, which was awarded FCA registration last December.
UK regulators and legislators are taking a multi-pronged approach to regulating the industry. The Bank of England recently called for โenhanced law enforcement and regulatory frameworksโ for crypto markets and assets. The government launched a task force to investigate the space in early 2018.
Since early 2020, the FCA has made registration mandatory for crypto businesses, but it has been a slow process. Rather than attempt to comply, some crypto firms have chosen to leave the country.
Among them is Wirex, a digital payments platform, which said Barron's in a statement that it had agreed with the FCA to withdraw its application for registration, but would continue to serve UK clients through a Croatian-regulated subsidiary.
Similarly, B2BC, a liquidity provider, said Barron's in a statement that it had withdrawn from temporary registration and is transferring its business operations to a US-based division. Its FCA-authorized derivatives business remains unaffected.
GlobalBlock Digital Assets Trading
(BLOK.TSX), a Canadian-listed digital asset broker, plans to incorporate in Lithuania and re-apply with the FCA in the future.
Critics of the FCA say that it is imposing stricter rules on cryptocurrency companies than on companies involved in traditional financial services.
โThe recent activity of the FCA reflects the lack of inclination towards cryptocurrencies at an institutional level. They have not approached this as a normal. [anti-money-laundering] certification,โ said James Kaufmann, a partner at London law firm Howard Kennedy, whose practice focuses on digital assets.
The FCA says it is only trying to protect consumers and maintain financial stability. โWe have seen too many financial crime red flags that crypto companies have missed and are looking to register,โ a spokesperson for the regulator said. Barron's in a sentence. "Worse, we've seen examples where companies don't have the controls in place to raise red flags in the first place."
The experience in the UK could be a harbinger of things to come in the US, where momentum is building for further regulation of cryptocurrencies. President Joe Biden recently signed an executive order commission comprehensive rule proposals from federal agencies. In Congress, Sens. Cynthia Lummis (R., Wyo.) and Kirsten Gillibrand (D., NY) are working on bipartisan legislation to regulate crypto businesses and digital assets.
Write Jack Denton at jack.denton@dowjones.com
