Crypto-ing the line

Back at the very beginning of 2020 Covid-19 still hadn't been designated a pandemic, Brexit still wasn't quite 'done' and you could start a cryptoasset business in the UK without needing to so much as notify the FCA you were doing so. 

In the intervening years the FCA has published a lot of material on the impact of Covid-19 and Brexit, but has been more sparing when providing guidance as to how firms should approach applications for registration as cryptoasset firms under the UK's anti-money laundering legislation. Until last week that is, when the FCA published a webpage which sets out feedback on the 300+ applications it has received for such registration since then.

Many might think this is long overdue - the FCA has approved just 40 of these 300+ applications in three years in a context where the government has ambitions for the UK to be a 'crypto hub' - and a little generic, but it does provide a helpful framework of things to think about.

As a financial services lawyer, I'm clearly drawn to the suggestion that firms consider seeking independent legal/compliance advice(!). It's pretty self-serving, but I think this can be particularly helpful at an early stage of the process - identifying precisely what activities are relevant and what the overall shape of an application should look like.  It's also really interesting to see the FCA call out transaction monitoring and blockchain analysis specifically, something I know they're very interested in. 

One key message from the webpage, which chimes with my experience advising on the process, is that the application is to register for AML purposes and the FCA will focus intently on the AML risks and mitigants of a firm. What is less overt, but also comes out, is that the FCA is deeply interested in the business model and operational structure of an applicant and the individuals responsible for it. This is very much the same menu of things which the FCA cares about when looking at more traditional regulated firms and won't come as a great surprise to those who have been through the process, but may have been a little surprising to some of those who didn't come through the other side.

Perhaps the most illuminating part of the whole piece is the advice not to use the fact that you have submitted an application as a marketing tool, given that it constitutes no form of endorsement or recommendation. This is bordering on the bleeding obvious, so the fact that the FCA feels the need to say it shows how many applicants hadn't sought (or maybe followed) good advice!