FOI request reveals crypto licence applications to the FCA have halved since 2021

APPLICATIONS for registration as a crypto asset exchange or custodian wallet provider through the Financial Conduct Authority (FCA) have fallen by 51% in the last three years, according to the findings of a Freedom of Information request submitted by law firm Reed Smith.

Figures provided by the FCA reveal that just 29 applications were received in the last year (May 1 2023 – April 30 2024), compared with 42 and 59 in the two years prior.

Just seven applications were received in Q1 2024 – the latest period for which complete data is available – the joint second lowest quarter in the last three years.

With the average time taken to approve applications within the last three years standing at 459 days, experts have questioned whether the speed of FCA approval could be undermining the UK’s broader efforts to become a global crypto hub.

Meanwhile, in the last three years, 186 firms have withdrawn applications, albeit a number that has fallen by 78% in the last year when compared with 2021-2022, suggesting a growing understanding of the FCA’s expectations.

The data revealed that (years running May 1 – April 30):

• The FCA received 29 applications in the last year compared with 42 in 2022 to 2023 and 59 in 2021 to 2022
• In the last year, 20 firms withdrew applications for registration, compared with 73 in 2022 to 2023 and 93 in 2021 to 2022
• In the last year, the average time taken to approve applications for registration stood at 311 days, compared with 497 in 2022 to 23 and 479 in 2021 to 2022
• Cumulatively since 2021, the FCA has spent the equivalent of 25 years assessing crypto applications
• Since the financial promotions rules came into effect in October 2023, the FCA identified 1,010 breaches in the first seven months to April 2024

The findings both drew praise and rang alarm bells for Brett Hills, a Partner at Reed Smith.

“The Herculean effort that the FCA has put into identifying breaches of the financial promotions rules shows unequivocally that the regulator takes its responsibility to protect consumers incredibly seriously," he said.

“Looking at the time taken to approve applications, the question is not whether the FCA is being thorough, but whether its processes are too slow. Balancing consumer protections with the promotion of innovation is always tricky – some might say you should not balance them at all. But it does seem that even though approval times are falling, the time taken to grant approval remains something of a drag on the UK’s broader ambition to become a crypto hub.

He added that, in context, the time taken to approve an application for registration might take about as long as an application for a full banking licence.

"If we expect firms to apply for full authorisation further down the line when the regulatory perimeter expands then something clearly needs to change to speed up the process, especially if London wants to become a major centre for digital assets," he explained.

“If it’s the case that applications are falling because crypto firms have essentially given up waiting and started looking abroad, this should send a clear warning about London’s competitiveness. Firms aren’t going to wait forever for approval, particularly if another jurisdiction seems to offer a comparatively quick process, with access to a comparably sized or even larger market. Effectively, we risk the UK’s crypto market being challenged from without by a growing number of increasingly crypto-friendly regimes and also from within by a remarkably slow approval process.

“The good news is that the falling number of applications suggests that firms are now much better acquainted with what the regulator expects. This can only be a positive development and would also explain the fall in approval times as the FCA has to spend less time wading through poor quality applications. Clearly, though, there is scope to speed up further.”