FCA elaborates on new rules for cryptoasset businesses
The UK regulator issues stark response to comments that small businesses in the cryptoasset segment should not pay fees or should not be regulated at all.
The UK Financial Conduct Authority (FCA) has posted a Handbook notice which includes details on the recently introduced rules for cryptoasset businesses in the UK.
As FinanceFeeds reported, since January 10, 2020, the FCA has been the anti-money laundering and counter terrorist financing (AML/CTF) supervisor of UK cryptoasset businesses under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). The amended MLRs also implement the European Union’s (EU) 5th Money Laundering Directive (5MLD) in the UK.
In October 2019, the FCA consulted on the fees structure it proposed to introduce to recover the costs of setting up and undertaking the new regime. Back then, the FCA proposed a flat-rate application charge for registration of £5,000 to recover estimated gateway costs of £400,000 from approximately 80 potential applicants known to the regulator.
In response to the feedback it received, the FCA has now amended its proposals and the Board has set the following application charges:
- £2,000 – businesses with income from UK cryptoasset activity up to £250,000; and
- £10,000 – businesses with income from UK cryptoasset activity above £250,000.
The FCA explains that a strong message from a roundtable meeting with cryptoasset businesses on 18 October 2019, backed up by many of the written consultation responses, was that the proposed registration charge of £5,000 would be too high for small firms and start-ups.
The regulator notes that, at this stage, it is largely registering businesses which are already trading, although new entrants are also able to apply for registration. Whatever indirect costs they will have to meet, they did not have the opportunity to factor the FCA fees into their business plans when deciding whether to start trading. That is why, the FCA believes it would be reasonable to make a concession for them in recognition of the many adjustments they will have to make to their operating models.
It has accordingly reduced the registration fee to £2,000 for businesses with UK cryptoasset revenue up to £250,000. To compensate for the loss of revenue, it has increased the charge for larger businesses to £10,000.
Some respondents argued that small businesses should not pay fees, and one suggested that they should not be regulated at all.
In response to these comments, the FCA said:
“Parliament has instructed us to regulate all cryptoasset businesses conducting the activities listed in the legislation. It did not set any limits on size. We cannot choose who we will regulate. It is fair that all regulated businesses should contribute towards the costs of supervision”.
The FCA adds that some of the smallest brokers, especially those describing their activity as a hobby, may not be trading ‘by way of business,’ in which case they may not require registration under the MLRs. They should refer to the section about activity carried on by way of business on The FCA website to consider whether they are likely to be eligible for registration, and if necessary take independent legal advice.
The FCA stresses that its application fees are not refundable if the regulator refuses registration. If an applicant is ineligible for registration, so should not have applied in the first place, the FCA will consider returning the fee provided the business can demonstrate that it made its best efforts to clarify its status before applying.
The FCA says it will not return the fee if the business appears to have been using the gateway to test its eligibility.