Parts of the crypto industry resemble the “Wild West”, the Treasury Committee has warned amid its inquiry into the regulation of crypto firms.
Around 85% of crypto-asset firms who applied to the UK’s financial regulator, the Financial Conduct Authority (FCA), failed to meet the minimum standards required for authorisation under its anti-money laundering and counter-terrorist financing regime.
It means that a high proportion of crypto businesses that applied to the regulator was rejected, with only 5% seeing their applications progressed at the first attempt.
We are in the middle of an inquiry into crypto regulation and these statistics have not disabused us of the impression that parts of this industry are a ‘Wild West’
Harriett Baldwin, chair of the Treasury Committee
Around three quarters of applications have been withdrawn or failed, which was the most significant withdrawal or failure rate they have seen when taking on a new remit, the committee said.
In a small number of cases, the FCA identified likely financial crime or a direct link to organised crime and referred the firms to law enforcement agencies.
“We are in the middle of an inquiry into crypto regulation and these statistics have not disabused us of the impression that parts of this industry are a ‘Wild West’”, MP Harriett Baldwin, chair of the Treasury Committee, warned.
The Treasury Committee – which is a select committee of the House of Commons – launched an inquiry last year into the potential risks and opportunities of crypto-assets, and whether the industry needs to be regulated.
It asked the FCA for evidence around the number of crypto businesses applying for a licence that it thought might be linked to criminal activity.
The FCA took a robust position during authorisation so that the risk of criminality was significantly reduced, thus the high rejection rate
The Financial Conduct Authority
The regulator said it identified significant failures from applicants over things like customer due diligence, risk assessments, transaction and ongoing monitoring, and governance.
“In many cases, key personnel lacked appropriate knowledge, skills and experience to carry out allocated roles and control risks effectively,” the FCA stated.
“The FCA took a robust position during authorisation so that the risk of criminality was significantly reduced, thus the high rejection rate.”
But the regulator stressed that just because a company does not meet its standards, it “does not necessarily follow that there is criminal activity”.
The findings come as the crypto industry has come under greater scrutiny in recent months, following the high-profile arrest of Sam Bankman-Fried, the founder of collapsed crypto exchange platform FTX.
The deputy governor for financial stability of the Bank of England, Sir Jon Cunliffe, said last month that the industry was “too dangerous” not to be regulated in the same way that other activities in the financial sector are.
Meanwhile, on Thursday former chancellor Philip Hammond was named as the new chairman of crypto exchange Copper.
He told the Financial Times that he would ensure the company was the “the best governed, most secure player in this space”.
