Applications for registration as a crypto-asset exchange or custodian wallet provider have dropped by 51% over the past three years, according to data obtained through a Freedom of Information (FOI) request by global law firm Reed Smith.

The Financial Conduct Authority (FCA) reported that only 29 applications were submitted between May 1, 2023, and April 30, 2024. This marks a decline from 42 applications in the previous year and 59 in the year before that. The first quarter of 2024 saw just seven applications, which is the second-lowest quarterly figure recorded in the past three years.

Regulatory Process Slows Progress

The average time for the approval of applications within the past three years stands at 459 days. Industry experts have raised concerns that this slow pace may hinder the UK’s broader goal of becoming a global hub for cryptocurrency. The lengthy approval process could discourage potential applicants and undermine confidence in the regulatory framework.

In the last three years, 186 firms have withdrawn their applications. However, the number of withdrawals has dropped significantly, falling by 78% in the past year compared to the 2021–2022 period. This decrease suggests that applicants may be gaining a better understanding of the FCA’s requirements and expectations, resulting in fewer withdrawals.

Withdrawals and Applications Data

The data provided by the FCA highlights several key trends. Over the last year, 29 applications were submitted, compared to 42 in 2022–2023 and 59 in 2021–2022. In the same period, 20 firms withdrew their applications for registration, down from 73 in 2022–2023 and 93 in 2021–2022.

“The good news is that the falling number of applications suggests that firms are now much better acquainted with what the regulator expects,” Brett Hillis, Partner at Reed Smith, said.

“This can only be a positive development and would also explain the fall in approval times as the FCA has to spend less time wading through poor quality applications. Clearly, though, there is scope to speed up further.”

The average time taken to approve applications in the last year was 311 days, an improvement from 497 days in the previous year. Since 2021, the FCA has spent the equivalent of 25 years assessing cryptoasset applications.

Since new financial promotion rules came into effect in October 2023, the FCA identified 1,010 breaches in the first seven months, up to April 2024. The introduction of these rules has led to increased scrutiny and enforcement activity in the sector.