AuthoriPay, one of Europe’s leading consultancy firms for crypto and e-money firms has issued a sobering warning to crypto-related companies. Despite the deadline for cryptocurrency registration fast approaching, only a handful of firms have so far submitted their application.
Scott Barker, a director of the Cambridge-based firm has stated, “Firms that are registered will benefit greatly because a lot of their competitors will be notified to cease trading or lose access to critical banking facilities once the deadline passes.”
Current Situation
On January 10, 2020, the FCA became the Anti Money Laundering and Countering Terrorist Financing (AML/CTF) supervisor for firms carrying on certain crypto-asset activities such as crypto exchanges and wallet services. The FCA’s remit is to regulate such entities under the scope of the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017, as amended (MLRs).
When must applications be submitted?
In line with the new regulatory regime, it has been mandated that firms who were operating before January 10th, 2020 must be fully registered with the FCA by 10th January 2021. In order to process all applications by next January, the FCA has set a deadline of June 30th, 2020 by which firms should have submitted their application.
What happens if we miss the application deadline?
All firms who miss the application deadline will be required to cease both taking on new customers and servicing existing customers. Firms that continue to trade without applying will be committing a criminal offense.
Don’t wait until the last minute before applying
Andrew Aitken, who heads up the firm’s cryptocurrency regulation claims, “Whenever new regulation comes into force, it is surprisingly common for firms to wait until the week before the deadline is due before arranging their application to the regulator, we saw this exact situation with the requirement to re-apply under PSD2” (The second Payment Service Directive).
AuthoriPay is warning that many significantly capitalized companies are being far too ‘l’aissez faire’ and have elaborated on the pitfalls of this approach:
- The application is much more complicated than companies think. Firms new to regulation are always surprised about how much the FCA asks of them and this has certainly been the case with this new regime. The FCA is not simply asking for a copy of your firm’s AML policy and procedures. They also want a regulatory business plan and financial forecasts plus details on your program of operations, structural organization, systems and controls, individuals, beneficial owners and close links, governance arrangements, and internal control mechanisms. This takes time and waiting until the last minute before you apply may mean your application won’t be ready.
- Consultancy firms will raise their fees to cope with extra demand. Given how complicated the application is, firms will likely ask for assistance from consultants. These consultants will then be swamped with requests and as a result, will triple their fees overnight. It’s akin to the airline model which is notorious for algorithms that respond to supply and demand and adjust the pricing accordingly. Airlines are frequently accused of profiteering during school holidays for this very reason. This will make the whole process more expensive than originally envisaged.
- The FCA will have less time to review your application. It goes without saying that the regulator will not rush an application through just because firms applied at the last minute. They still have to assess your firm’s controls for suitability. If they haven’t completed their assessment by January 2021 then you will have to cease trading
- Banks will cut off facilities
Crypto-related companies have been incredibly underserviced by banks and for firms that fail to register in time, the situation will get much worse. Banks have often insisted that firms become registered with a regulator (historically in the form of an EMoney license) before they are prepared to onboard them. Now that this specific registration requirement is in place, it is certain that as soon as the January 10th, 2021 deadline has passed, banks will be checking the regulator’s registers to ensure firms appear there. Where a firm is not listed, then banks will deem that they are operating illegally and will be mandated to close accounts without any notice period.
If you’re a crypto-asset firm, the deadline for applying is fast approaching, and now is the time to get your application ready for submission to the FCA. Avoid finding yourself in a position where you have to cease trading and allow your competitors to hover up market share. Contact AuthoriPay for assistance without delay.
