Is the UK’s financial watchdog ready for enforcement?

The US has been busy cracking down on crypto firms for the past two weeks, but across the pond, the UK’s financial regulator has barely moved an inch. However, it may just be the calm before the storm.

Meanwhile, the UK’s Financial Conduct Authority has 51 unregistered crypto companies serving clients in the country, which it has flagged but has yet to take action against – or so it seems. Most of these companies have been on this list since 2021. If crypto firms want to operate in the country, they are (in theory) obliged to register with the FCA and comply with its anti-money laundering rules.

“I am quite surprised to see the relative lack of action by the regulator against these firms. It has powers under the regulations to, for example, apply for injunctions, to initiate prosecutions, and I am certainly not aware that those powers are being used by the regulator at this time,” said James Alleyne, legal director at Kingsley Napley and a former FCA official, referring to the unregistered firms serving UK customers. That said, the FCA can take action covertly, Alleyne added.

To its credit, the FCA has been strict about which companies it approves for registration, much to the chagrin of the local crypto industry.

Of the 300 crypto firms that applied to register with the regulator, only 41 managed to register with it. The rest were either refused a license after a full assessment, refused before the full assessment was carried out or withdrew their applications.

The regulator revealed this year that it had also flagged a few crypto firms seeking to be registered for law enforcement, and some investigations are ongoing.

The FCA has investigative and enforcement powers, as set out in the UK Money Laundering Rules, to take action against firms that fall within its remit. According to these rules, it is a criminal offense to operate without registration. In addition, the FCA can also take enforcement action under existing financial services rules if crypto firms unlawfully carry out other activities it regulates, such as operating collective investment schemes, providing ancillary services or issuing financial promotions.

Alleyne said more action against the 51 unregistered crypto firms is needed to stop criminal activity.

“These firms could potentially pose a much higher risk of money laundering or terrorist financing than firms that have now entered the regime and are being monitored for these purposes,” Alleyne said.

The FCA is also keeping a close eye on crypto campaigns and has already warned companies that breach the new advertising rules could face up to two years in prison.

So it’s not a question of if the FCA will crack down on bad crypto actors, but a question of when – and perhaps how soon.