FCA admits cryptoasset businesses are costly to supervise
The UK Financial Conduct Authority (FCA) today posted its Handbook Notice 86, providing some rather interesting details on its regulation of the cryptoasset sector.
In Chapter 3 of CP20/22, the FCA consulted on the structure of periodic fees for cryptoasset businesses. Since January 2020, the regulator has been responsible for supervising cryptoasset exchange providers and custodian wallet providers (cryptoasset businesses) under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR).
The FCA remit is limited to registering and supervising these businesses under the MLR regime. The FCA is not responsible for regulating how they conduct their business with consumers.
Back when the consultation paper was first published, the FCA proposed to put all cryptoasset businesses supervised under the MLR into a single fee-block and base their fees on income from the cryptoasset activities that the FCA supervises under the MLR (ie income from the provision of cryptoasset exchanges and custodian wallet services only).
In line with most of the fees the FCA charges under FSMA, businesses with up to £100,000 of income would pay a minimum fee only, and the FCA proposed a minimum charge of £2,000. Businesses with incomes above £100,000 would pay the minimum charge plus a variable rate.
The number of businesses successfully meeting the minimum threshold standard for registration is small, the regulator notes. Its assessments have revealed a wide range of different and often complex business models and it has become clear that many businesses have not been set up to comply with the regulations. Only a few firms have managed to achieve registration and a number of businesses have withdrawn their applications.
Currently, insufficient fee-payers have successfully registered to support material cost recovery during 2021/22. The FCA had to defer introduction of periodic fees until 2022/23. This means the FCA will have to carry forward all of its costs to next year.
The FCA comments:
“Our experience of processing applications indicates that this is going to be a costly sector to supervise. As a result of the complex assessments we have had to carry out, our project costs have risen to £7.7m. Our annual supervisory costs will be clearer once we have assessed all applications”.
These costs will have to be recovered from a supervised population which may be smaller than the FCA originally anticipated. Since no periodic fees will be levied in 2021/22, the FCA will consult on the rates, including the minimum fee, in April 2022.
Let’s note that HM Treasury are consulting on a regulatory regime for stablecoins used for payment and may consider a broader regime for cryptoasset activity in the future. The FCA says it will consider the implications of any proposals set by the Treasury, including possible consultations if appropriate.