The UK’s regulatory environment for crypto firms has become increasingly burdensome, leading to a significant decline in registration applications. According to a report by law firm Reed Smith, crypto asset exchanges and custodian wallet providers are turning away from the UK due to slow and complex regulatory processes. The Financial Conduct Authority (FCA) received only 29 registration applications between May 2023 and April 2024, marking a sharp decline from previous years.
The average approval time for crypto registration applications in the UK stands at 459 days, with some firms waiting over two years for a decision. This prolonged process has prompted many crypto businesses to seek more efficient regulatory environments abroad. Since 2020, the FCA has processed over 300 applications, but only 45 firms have successfully gained approval, reflecting a low acceptance rate of around 15%.
Critics argue that the stringent criteria and rigorous scrutiny applied by the FCA have made the UK an unattractive destination for crypto firms. Many companies, including major centralized exchanges, have opted to relocate to more accommodating jurisdictions that are friendly towards cryptocurrencies. The UK’s application of outdated regulatory frameworks to a rapidly evolving industry has stifled innovation and driven firms away.
A Freedom of Information request by Reed Smith revealed that 186 firms had withdrawn their applications over the past three years. While the number of withdrawals decreased by 78% in the last year, the trend still highlights the challenges posed by the FCA’s regulatory approach. The regulator has emphasized the importance of market integrity and consumer protection over the speed of processing applications, but industry frustration continues to grow.
The growing frustration within the crypto industry suggests that the UK may lose its competitive edge in the global market if significant reforms are not implemented. The country’s ambitions to establish itself as a global hub for digital assets are at risk due to the exodus of crypto firms seeking more favorable regulatory environments elsewhere. Without adapting to the changing demands of the industry, the UK faces the threat of falling behind in the rapidly evolving crypto market.
