The United Kingdom’s attractiveness to crypto firms has been on the decline in recent years, with many companies turning away due to burdensome and time-consuming regulatory processes. According to a report by the Financial Times, registrations for crypto asset exchanges and custodian wallet providers with the UK’s Financial Conduct Authority (FCA) have decreased by more than 50% over the past three years. This trend reflects growing frustration with the country’s regulatory environment, as highlighted by a Freedom of Information (FOI) request by law firm Reed Smith.
The average approval time for crypto registration applications with the FCA stands at a staggering 459 days, with some firms waiting over two years for a decision. This extended timeline has driven many crypto businesses to seek more efficient regulatory environments abroad, leading to a significant exodus from the UK. The FCA’s stringent criteria and rigorous scrutiny have been criticized for making the country an unattractive destination for crypto firms, ultimately hindering innovation and growth in the industry.
As a result of these regulatory hurdles, the UK’s ambitions to position itself as a global hub for digital assets are at risk. Many companies, including major centralized exchanges, have opted to relocate to more crypto-friendly jurisdictions where they can operate with greater freedom and flexibility. The outdated regulatory frameworks applied by the FCA to a rapidly evolving industry have stifled progress and driven firms away from the UK, posing a significant threat to the country’s competitive edge in the global crypto market.
Despite processing over 300 applications since 2020, the FCA has only approved 45 firms, indicating a low acceptance rate of around 15%. The FOI request by Reed Smith also revealed that 186 firms had withdrawn their applications in the past three years, further illustrating the challenges faced by companies dealing with the FCA’s regulatory approach. While the number of withdrawals decreased by 78% in the last year, the overall trend suggests that the current regulatory environment is not conducive to fostering growth and innovation in the crypto sector.
The FCA has defended its cautious approach, citing the importance of market integrity and consumer protection in the approval process. However, the increasing dissatisfaction among industry players highlights the urgent need for significant reforms to the UK’s regulatory framework. Without addressing these issues and creating a more favorable environment for crypto firms, the UK risks falling behind in the global race for dominance in the crypto market.