MiCA rejection rates bring forthcoming UK crypto regime into sharp focus
From the early stages of the evolution of crypto and digital assets markets, firms active in the space faced a fork in the road – should they seek engagement with regulators and ultimately regulated status, or build their business in the margins, making full use of grey areas, exemptions and offshore jurisdictions. The last two years have seen the divide intensifying, with some firms who sought regulated status finding themselves nonetheless locked out:
Reports suggest less than 20% of firms previously active in crypto products in the EU have been successful in securing a license under MiCA. This leaves many, including a number of prominent names like Binance, unable to offer services to EU customers.
Only 13 firms have been licensed as VATPs in Hong Kong, with a number of high profile names withdrawing applications. It remains to be seen how the new rules for intermediaries in crypto will affect this picture.
Only 38 crypto business have been licensed in Singapore as Major Payment Institutions, following a long period where many firms were grandfathered and waiting to learn the fate of their business.
Around 50 firms have now been licensed in the UAE by VARA, with a handful of firms alternatively seeking licensing in either the DFIC or ADGM.
Now it is the UKs turn to implement a new standard, and potentially freeze a large number of crypto firms out of its markets. Reports indicate that the FCA has already rejected as many as 90% of the crypto businesses who applied for registration under the Money Laundering Regulations, and the number of firms able to offer digital assets under the existing framework for financial instruments remains very limited. As such, firms applying for authorisation under the new UK framework for activities in qualifying cryptoassets can be sure of a tough road ahead.
Those firms who decide to apply must prepare for the following:
Identifying how the new regulated activities map to your business, and ensuring your application or variation covers all proposed activities
Complying with the UKs complex rules for conduct of business, including a high bar for protection of retail investors under the consumer duty (product governance, fair value assessments, etc.)
Engaging with an innovative model for listing requirements and the monitoring of market conduct, which is centred on industry oversight, and does not map directly to the existing market abuse regime for financial instruments
Ensuring your framework can meet the high standards in the UKs client assets rules, including enhanced measures for record-keeping, reconciliation and private key management
Building capital and liquidity reserves, along with a robust risk management framework, to comply with the new Prudential standards.
Want to give yourself the best chance of success, against a backdrop of high rejection rates? We process a large number of FCA authorisations and variations every year. Our team have been working with crypto and digital assets businesses since 2019, across the UK, EU, UAE and APAC. Get in touch to see how we can help.