Cryptocurrency companies are increasingly turning away from the UK, citing cumbersome and lengthy regulatory processes as a key factor, the Financial Times reported, citing law firm Reed Smith.
Registrations of crypto asset exchanges and custodial wallet providers with the UK’s Financial Conduct Authority (FCA) have fallen by more than 50% over the past three years, reflecting growing frustration with the country’s regulatory environment.
Sharp drop in applications
A Freedom of Information (FOI) request by law firm Reed Smith revealed that between May 2023 and April 2024, the FCA received just 29 applications for registration. This is a sharp drop from 42 applications the previous year and 59 applications the year before.
At the same time, the first quarter of this year saw just seven applications, one of the lowest quarterly totals in three years. This significant drop indicates that crypto businesses are growing frustrated with the FCA’s processes, which many consider to be excessively slow and complex.
The average time for cryptocurrency registration applications to be approved by the UK regulator is 459 days, with some companies waiting more than two years for a decision. This protracted process has led to a growing exodus of cryptocurrency businesses in search of more efficient regulatory environments abroad.
Since 2020, the FCA has processed more than 300 applications, but only 45 firms have been approved, reflecting an acceptance rate of around 15%.
UK not attractive for cryptocurrencies
Critics are growing that the FCA’s strict criteria and tight oversight have made the UK an unattractive destination for cryptocurrency businesses, with many, including some of the largest centralized exchanges, choosing to seek more accommodating shores for their operations.
Many businesses are concerned that the UK is applying outdated regulatory frameworks to a rapidly evolving sector, stifling innovation and pushing businesses to more crypto-friendly jurisdictions. This trend threatens the UK’s ambitions to establish itself as a global hub for digital assets.
The freedom of information request by law firm Reed Smith also revealed that 186 firms had withdrawn their applications in the last three years. Although the number of withdrawals has fallen by 78% over the last year, the overall trend illustrates the challenges posed by the FCA’s regulatory approach.
The FCA has defended its cautious approach, stressing the importance of market integrity and consumer protection over the speed of processing applications. However, growing frustration within the industry suggests that without significant reforms, the UK could continue to lose its competitive edge in the global cryptocurrency market.
