According to recent media reports, lawmakers have criticised the Financial Conduct Authority (FCA) because of their slow response to processing crypto asset licence applications and for denying some crypto asset applications. These objectives are possibly fuelled by the UK government’s intension to become a ‘global hub’ for the crypto asset industry.  

Lysis Group has been, and continues to be, successful in assisting clients with complex and contentious regulatory aspects regarding crypto registration. We have significant expertise in the crypto asset space and can provide substantial insight into this very dynamic market.

Specifically, we can provide guidance and practical assistance to ensure that your firm’s preparations for the crypto application meets the regulator’s standards to ensure a successful registration. This includes:

• A detailed review of the requirements and expectations.
• The management of the application process from requirements to submission; and
• To review and, if necessary, redraft documents to ensure that all the regulator’s requirements and expectations are met.
• Help managing the responses and inquiries from the regulator during their review of the registration application.

The regulatory landscape

Firms that engage in crypto asset related activities in the UK must formally register with the Financial Conduct Authority (FCA) after which these firms can apply for an 'Authorized Payment Institutions' license.  This is also applicable to firms that are already registered or authorised by the FCA (e.g., e-money institutions, payment services and FSMA firms) and wish to carry out relevant crypto service activities.

In addition, the FCA, and other regulators, require that crypto asset firms operate in a regulated market, that is aligned with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (as Amended) (MLRs) which include the Proceeds of Crime Act 2002. Crypto asset firms are also subject to fit and proper requirements under Regulation 58A of the MLRs.

Due to the ever-changing nature of the crypto asset environment, temporary registrations were granted to existing crypto asset firms up until 31st of March 2022, specifically to firms that were engaged in MLR crypto asset activities, immediately before 10th January 2020, where applications were still pending determination. However, the FCA requires that all new firms that began operating after the 10th of January 2020 to obtain full registration before they can conduct crypto asset business in the UK.

The Financial Action Task Force (FATF) published their ‘Targeted update on implementation of the FATF Standards on Virtual Asset Service Providers (VASPs) in June 2022. The UK determined that updating the existing MLR’s was more practical than trying to update the EU Funds Transfer Regulations and, maintains all rules/legislation relating to crypto asset firms under one legislation. As a result, the HM Treasury has confirmed that it will move ahead with the implementation of the long awaited ‘travel rule’ for crypto asset wire transfers in the UK.

In short, the Travel Rule requires VASPs and other financial institutions, to share relevant originator and beneficiary information alongside virtual asset transactions, therefore hampering criminal and terrorist activities and will be effective from 1 September 2023 (after the 12-month grace period).

Following a successful registration, Lysis can offer additional support in a regulated market. This includes the design, development, implementation, and enhancement of an effective and robust Financial Crime framework which meets the regulator’s requirements and expectations.

A robust financial crime framework

Once a crypto asset firm has obtained full registration to operate in a country, is when it faces the real challenges i.e., to develop, maintain and operate a robust financial crime framework and demonstrate that effective controls are in place. This can be a very costly and challenging process that is often overlooked and underestimated. Additionally, it is likely that the regulators will intensify scrutiny to ensure that all the newly registered crypto asset firms are aligned with AML regulations and operate with appropriate controls to fully protect their bottom line and their clients.

To navigate through the various regulatory requirements from different countries, to register a crypto asset firm, seems to be an impossible task, especially when a firm has global reach.

Having vast experience, Lysis Group believes that a successful registration requires careful planning and preparation so that the documentation submitted for review is fit for purpose and responds correctly to the test questions. In addition, the application must be prepared to provide the regulator with clarity on the business purpose and activities and demonstrate a good understanding of the risks and effectiveness of controls.

To date, we have assisted several crypto asset firms with the required registration processes in various countries including assisting one of the first crypto asset firms to be registered in the UK. As crypto registration experts, we can assist your firm in achieving full registration in a cost-effective manner within various jurisdictions, if needed, and give you the peace of mind in knowing that your firm can safely operate in a regulated market.