By Lee Hills, CEO of Blockchain regulation specialist SolutionsHub,
Following revelations that many UK cryptoasset companies have been left in limbo by the Financial Conduct Authority (FCA), the regulator has announced an interim measure to allow time to clear the backlog of application processing. Lee Hills, CEO of Blockchain regulation specialist SolutionsHub looks at what this means for the companies involved…
The Temporary Registration Regime has been established for businesses that applied for registration before December 16, 2020 and grants them permission to trade until July 9, 2021 in the hope the backlog can be cleared by that date.
The FCA cited the complexity and standard of applications and the pandemic issues as the reasons for the delay.
The move will undoubtedly be welcomed warmly by applicants, providing a stay of execution for many businesses concerned that a lack of feedback was seemingly giving them no option but to close down operations on January 10, 2021.
What about the unregistered or new businesses?
It’s bad news. In an unusual move that arguably stifles innovation, the FCA have confirmed: “Firms that did not submit an application by December 15, 2020 will not be eligible for the temporary registration regime” and “They will need to return cryptoassets to customers and stop trading by January 10, 2021. Firms that do not stop trading by that date are at risk of being subject to the FCA’s criminal and civil enforcement powers”.
Therefore, any business that has either failed to meet the December 15, 2020 deadline, or any new business dealing in cryptoassets, is now frozen out, forcing them to locate outside the UK.
Are the registered businesses safe?
The Temporary Registration Regime is a measure to allow the FCA more time to assess the existing applications – not a guarantee of acceptance.
With limited, or no feedback for many businesses we have spoken with, there is a significant risk that the applications are rejected, leaving them with no option but to shut down operations, presenting business-critical risk which could be mitigated.
Is the Isle of Man still a relevant solution?
For those included in the Temporary Registration Regime, the Isle of Man offers an opportunity to mitigate the unknown. For new businesses, it represents a welcoming home away from the now closed UK regime.
The Isle of Man has struck a balance between full regulation, which would kill the opportunity by restricting innovation, and no regulation, which would present significant money laundering and terrorist financing risks to the island.
Instead, the Isle of Man introduced the Designated Business (Registration & Oversight) Act, in 2015 (the “DBA”), under which we can register a company as a ‘Designated Business’, meaning anyone who undertakes:
“the business of issuing, transmitting, transferring, providing safe custody or storage of, administering, managing, lending, buying, selling, exchanging or otherwise trading or intermediating convertible virtual currencies, including crypto-currencies or similar concepts where the concept is accepted by persons as a means of payment for goods or services, a unit of account, a store of value or a commodity”
The DBA has established in law for the last five years, the principles required by the Financial Action Task Force for member countries to adopt to counter money laundering and terrorist financing. To that end the Isle of Man’s legislative framework has, since 2015, had required on cryptoasset companies equivalent outcomes in this regard as the FCA is now requiring of UK companies under the 5th EU Anti Money Laundering Directive.
That means for cryptoasset companies a steady, unchanged legislative and regulatory regime overseen by a Regulator that is experienced and understanding of cryptoasset businesses.
The registration process is clear, transparent and defined, providing business owners and operators absolute clarity over the expectations of them as a designated business, costs and process.
The flexible and forward-thinking mindset of regulators in the Isle of Man makes the island a hugely attractive option for cryptoasset companies seeking long-term stability and a solid foundation from which to build a business.