Hundreds of crypto firms fail FCA money laundering test

Only 35 of the 273 applications to the Financial Conduct Authority (FCA) under the Fifth Anti-Money Laundering Directive have successfully received authorization. 

When the Fifth Anti-Money Laundering Directive (5MLD) was introduced in January 2020, the UK-based regulator received a flood of applications from crypto service providers. However, only 13% of applications under the regime have made it through the process in the last two years.

In total, the FCA only approved 4 applications in 2020. It then approved 25 in 2021 and has only approved another six so far this year. Overall, this shows that the regulator is taking an incredibly tough stance on which crypto companies it allows to operate in the UK.

A number of applications were withdrawn rather than rejected

Of the applications that did not make it through the system, the majority were withdrawn by the candidates themselves. Others were rejected because the company in question did not provide enough information or did not meet the required standards.

Firms can request to withdraw their applications at any time during the process and can do so for a number of reasons. Common reasons for withdrawing applications included not meeting the requirements of the regulations, or understanding that registration was likely to be refused.

Some have argued that the framework of expectations provided by the FCA is unclear and makes the process difficult for firms. Similarly, others have pointed out that many firms initially submitted incomplete or under-supported applications, which have since been withdrawn.

At present, the crypto industry is at loggerheads with the FCA, which is attempting to implement safeguards for retail investigators who have been burned by high-risk products. As part of this, the watchdog has looked at ways that it can clamp down on the way digital assets are marketed. It has also warned crypto providers about attempts to evade sanctions controls and is currently looking for a leader who will run a new department that will focus specifically on overseeing the sector.

Firms understand need for increased regulation

That said, the FCA’s tough stance does not appear to have stopped firms from seeking FCA approval under 5MLD. As of May 2022, 74 applications remained pending. Experts at the FCA believe this is because many crypto firms now see the benefits of regulation and they appreciate that rules are there to help provide certainty for investors.

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