Update: Providing certainty to crypto businesses looking for registration

“It’s been a while since we first spoke about the UK’s Financial Conduct Authority’s Temporary Registration Regime which applies to crypto businesses seeking registration under the Money Laundering Regulations 2017, but it’s worth revisiting after nine months.

You’d be fooled to think that not much has happened, but at the very least the UK FCA has issued a further nine registrations in 2021.  However, that still leaves 56 entities on the Temporary Registration list.  This is down from 90 entities on the list in May 2021, with many withdrawing their applications. It was back in January 2020 that the UK FCA took supervisory responsibility for businesses undertaking cryptoasset activities, yet the FCA’s own deadline to complete its assessment of those on the temporary list is 31 March 2022.  The FCA’s recent actions point to the difficult position it finds itself in, ensuring that consumers and markets are protected from any financial crime risks from cryptoassets, protecting consumers from complex investment instruments by banning crypto-derivative sales to retail customers and generally warning them of the risks of cryptoasset investment while ensuring innovation in digital finance is not stifled in the light of the UK Government and Bank of England commitment to digital currencies.

There is no doubt that some businesses have withdrawn their applications to the UK FCA on the basis that they are not complying with internationally acceptable anti money laundering standards, but others are left in the limbo of not having certainty over their flight path to becoming registered for AML purposes.  By blocking further registration applications from crypto asset businesses until the FCA clears its Temporary list, innovative digital finance and cryptoasset businesses are being denied finding a home in the UK.

There continues to be a call from the businesses for strong regulatory frameworks in this space and this is the experience of Digital Isle of Man when talking with digital finance businesses looking for a home.  Many businesses understand the need for robust registration requirements and they want to work with regulators to help them fully understand the world of digital/crypto finance and the risks it presents.  There is recognition that companies and regulators alike are ‘on a journey’.

Being confident of the starting point and having a map of what that journey could look like is good for businesses, it provides them with some degree of certainty.  And that’s what the Isle of Man has to offer cryptoasset businesses.  With the introduction of our Designated Business (Registration and Oversight) Act in 2015, and the preceding changes to our Proceeds of Crime Act recognising virtual currencies and virtual currency businesses, the cryptoasset registration map is there to allow planning to take place.  The registration regime has been in place for over 5 years in the Isle of Man and the Isle of Man Financial Services Authority (‘IOMFSA’) has experience in navigating it with cryptoasset businesses. The registration policy is available from the IOMFSA’s website using this link: iomfsa dnfbp registration policy.pdf

At the beginning of 2021, the IOM Financial Services Authority helped businesses further by giving them early sight of the map, through its ‘subject to’ registration regime, which allowed those who met all registration requirements except a real presence (residency) in the Isle of Man to have an offer of registration should they meet the real presence/residency requirements within a set deadline.  In the midst of COVID restrictions and in the light of the FCA’s announcement of delays in its registration process to March 2022, the ability to apply for Isle of Man registration on a ‘subject to’ basis was a light on the regulatory roadmap.  Since our announcement, many UK cryptoasset businesses both on the Temporary Register as well as newly forming businesses have approached Digital Isle of Man to discuss the prospect of the Island being their home.

It’s a conversation both Digital Isle of Man and the IOMFSA are keen to have with cryptoasset businesses.  Registration of crypto currency businesses is not guaranteed.  Applicants for registration must demonstrate matters such as a real designated business activity present here in the IOM (not just an IOM created company with third parties acting as directors), and the fitness and propriety of certain role holders. Like the UK, crypto asset businesses in the IOM need the same high standards of anti-money laundering and counter terrorist financing risk management, controls and procedures in place.  However, being able to make an application for registration and know that the process is open and clear helps to continue to support the digital finance industry and ensure innovation continues: both innovation in financial services and innovation in regulation.  A jurisdiction and regulator that is open for business is also one that is open for innovation in a sector where the pace of change and development is ever increasing.

For more details of the ‘subject to’ Designated Business registration and the Isle of Man as a home for your crypto business, contact Digital Isle of Man, Or see more in the IOM FSA website at https://www.iomfsa.im/designated-business/registration-policy/

By Steve Billinghurst, Regulatory Lead, Digital Isle of Man