The UK crypto industry has significantly damaged its reputation in recent days. The chair of the Treasury Select Committee, Harriett Baldwin MP, has lashed out at the UK crypto industry, calling it a “Wild West.” Many will believe she has a point.
The comments came after 85 percent of crypto-asset firms (41 out of 300) who applied to the Financial Conduct Authority (FCA) failed to meet the minimum standards required for registration.
There were a few cases where the financial regulator identified likely financial crimes or direct links to organized crime. The FCA passed suspected cases onto 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,” said Harriet Baldwin MP, the committee chair.
The Treasury Select Committee is a cross-party forum responsible for scrutinizing the UK’s finances. Its remit includes examining the work of public bodies, including the Bank of England and the FCA.
A Terrible Look for the UK Crypto Industry
From Jan 10, 2020, the government implemented standards for terrorist financing and money laundering activity that crypto firms were required to meet. Making them subject to the same standards as traditional financial markets. The Treasury revealed that many crypto firms did not meet these standards. Only 5% passed the first attempt.
The regulator reported that 73% of applications were withdrawn or failed on the first attempt. The highest rate they have ever seen. A statistic that paints the industry in a negative light.
In a letter to the committee chair, Sarah Pritchard, Executive Director of Markets at the FCA, said:
“As mentioned in the session, just because a firm is not able to satisfy us that it meets the standards we would expect in terms of its anti-money laundering systems and controls, it does not necessarily follow that there is criminal activity. Some firms who withdraw from registration will re-submit their applications once they believe they can meet our standards.”
Failed Applicants Can Reapply
“This worrying statistic shows why the FCA must continue to take a robust stance on crypto-asset firms and exchanges that look to operate within the UK,” said Martin Cheek, managing director of anti-money laundering software platform SmartSearch.
“The cryptocurrency industry must meet the compliance requirements of the 5th Anti-Money Laundering Directive by integrating digital compliance solutions with their own technology. As well as meeting the FCA’s requirements, this would certainly give crypto investors greater peace of mind.
“Cryptocurrency can provide a vehicle for money laundering, and a front for some of the world’s worst crimes – people trafficking, tax dodging, sanctions evasion, and international corruption and its victims are often the poorest and most vulnerable in society.”
The news comes as the new UK Prime Minister tries to make the UK a global crypto hub. This week, the former Finance Minister, Phillip Hammond, said the country was slipping behind other countries. In recent days, Hammond has become the chair of Mayfair-based crypto custodian Copper.
“The UK needs to be leading in this area post-Brexit,” Hammond said. “It’s allowed itself to slip behind. Switzerland is further ahead. The EU is also moving faster. There has to be an appetite to take some measured risk.”
The Warning Signs Are Flashing
This is the latest round of bad news for the UK crypto industry. Over the last few months, the sector has seen repeated blows to its ambitions. Last month, the incoming head of the FCA, Ashley Alder, made damning comments about crypto.
He told the Treasury Select Committee that crypto platforms were “deliberately evasive” and a method by which money laundering happens at size.”
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