Why do cryptoasset businesses need to register with the FCA?
On 10 January 2020, the UK’s Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (the MLR Amendment) entered into force.
The MLR Amendment assigned the FCA with responsibility for the supervisory and enforcement aspects of the anti-money laundering and counter-terrorist financing regulation in respect of UK cryptoasset businesses.
In accordance with the MLR Amendment, all UK cryptoasset businesses must register with the FCA. Existing cryptoasset businesses (i.e., those that were already carrying on cryptoasset activity in the UK immediately before 10 January 2020) are able to continue with that business, in compliance with the MLR, provided they are registered with the FCA by 10 January 2021.
Any new businesses which began operating after 10 January 2020 must be registered with the FCA before carrying on any cryptoasset activity.
In each case, failure to register by the required deadline will mean that the relevant cryptoasset business must stop all cryptoasset activity. For a detailed review of the MLR Amendment and its effect on UK cryptoasset businesses, please see our previous client alert.
Who does the registration requirement apply to?
The registration requirement applies to cryptoasset exchange providers and custodian wallet providers,1 if they carry on cryptoasset activity within the scope of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (as amended by the MLR Amendment, the MLRs), and if this activity is conducted in the course of business carried on in the UK.
It is worth noting that firms authorised or registered under the Financial Services and Markets Act 2000, Electronic Money Regulations 2011 or the Payment Services Regulations 2017 who also carry on a cryptoasset activity subject to the MLRs will be required to apply for registration.
The registration deadline is not until 10 January 2021. Why should I submit an application now?
The FCA has said that the 30 June deadline has been set in order to give it sufficient time to review submitted applications and raise any follow-up questions with crypto businesses ahead of 10 January 2021.
The FCA’s guidance warns firms that “If you do not submit a complete application by 30 June 2020, your registration may not be processed by 10 January 2021. If you are not registered with the FCA on 10 January 2021, you have to cease trading.”
Once the FCA receives the registration application, it is likely that the FCA will ask the applicant for additional information to inform the assessment. Applicants will need to factor in this possibility, and the time needed to gather the additional information requested.
Once the FCA is satisfied that it has all of the information it needs, it has up to three months to assess an application. The FCA’s press release suggests that so long as the applicant submits a complete application by 30 June 2020, the applicant should be confident that the application will be ready to be determined by 10 October 2020 (i.e., three months prior to the registration deadline).
Is there a cost?
Yes. The FCA has agreed that the charges will be:
- £2,000 – for businesses with UK cryptoasset income up to £250,000
- £10,000 – for businesses with UK cryptoasset income greater than £250,000
The FCA has defined income as the gross inflow from economic benefits (i.e., cash, receivables and other assets) recognised in the registered UK entity’s accounts during the reporting year in relation to the provision of the cryptoasset activities specified in the MLRs.
What should I do next?
If you have not already submitted your application for registration, we recommend reviewing the FCA’s information page on the registration process as soon as possible to understand the scope of the MLRs and the relevant requirements.
Once you have done this, please reach out to your usual Reed Smith contact or any of the authors of this alert, who will be happy to help you (i) determine whether you need to register with the FCA, (ii) review an in-progress application to ensure it meets the FCA’s requirements, or (iii) commence an application if you have not begun the application process.
- See Regulation 14A of the MLRs and also the above-mentioned client alert for the relevant definitions.
Client Alert 2020-404
