Strict FCA timelines and low approval rates shape UK crypto landscape
The FCA has approved only 15 per cent of the 265 crypto applications submitted since 2020 due to high regulatory barriers. Firms face a February 28, 2027, deadline to transition to the new regime to avoid fines and ensure compliance with strict money laundering standards.
The FCA application window for crypto firms to transition to the new regulatory regime closes on February 28, 2027. This five-month window began on September 30, 2026. I observe a difficult landscape for businesses attempting to move from the money-laundering registration system to the stricter approval regime under the Financial Services and Markets Act. The regulator maintains high barriers, as only 15 per cent of the 265 applications submitted since January 2020 have received approval. Of the remaining submissions, 29 were rejected and 195 were either refused or dropped out of the process entirely. I find the fact that 85 per cent of applicants failed to meet the minimum money laundering regulatory standards quite telling.
| Application Data (since 2020) | Figures |
|---|---|
| Total applications | 265 |
| Approved applications | 41 |
| Refused or dropped applications | 195 |
| Failed MLR standards | 85% |
The Financial Conduct Authority expects applicants to include details of their business model and demonstrate risk assessment capabilities while providing a clear understanding of how money laundering regulations correlate within their own group structure throughout the application process. Applicants must also show they can analyse blockchain data and monitor transactions using policies and systems that comply with the regulator’s understanding of risk. Katharine Wooller of Coincover notes that the government has not yet introduced the standards needed to legitimise the industry, which can lead to poor standards and turbulence. The regulator intends to apply principles broadly consistent with traditional financial markets. These principles focus on investor information and proportionate obligations for firms.
Shadow custody and stablecoin mandates
The regulator now addresses "shadow custody" to ensure providers cannot bypass oversight through technicalities. If a provider retains the theoretical power to override a client’s authority, the FCA classifies them as a custodian. The use of smart contracts, public blockchains, or any elements of decentralisation does not move an arrangement outside the regulatory perimeter. Stablecoin issuers face similar constraints because they must be established in the United Kingdom and manage the entire lifecycle, including the initial offering, redemption, and reserve maintenance. I see the FCA enforcing these rules through aggressive monitoring, issuing over 1,000 warnings to unregistered firms and removing 48 apps from UK app stores.
Businesses must submit applications by the February 28 deadline to avoid fines. Missing this deadline exposes firms to the risk of being unable to offer regulated crypto asset services once the new regime takes effect on October 25, 2027. This new regime covers consumer protection, client asset custody, market integrity, and financial resilience.
Approval delays and market competitiveness
The time required for approval affects the ability of the UK to function as a global crypto hub. While the average approval time fell to 311 days in the last year compared to 497 days in 2022-23, the delay still exists. Applications for registration fell by 51 per cent over the last three years, and 186 firms withdrew their applications during that same period. In the last year, 20 firms withdrew applications, a figure lower than the 73 withdrawals in 2022-23 and the 93 withdrawals in 2021-22. Brett Hillis of Reed Smith says the time taken to grant approval remains a drag on the UK’s ambition to become a major centre for digital assets. In the first quarter of 2024, only seven applications were submitted, which was the joint second-lowest quarter in the three years leading up to that period.
The FCA also conducts a wide consultation on crypto admissions, market abuse, exchange standards, intermediaries, lending, borrowing, staking, and decentralized finance. You should monitor the Bank of England as it works to finalize its own stablecoin regime for everyday payments by the end of 2026. Charleyne Biondi of Moody’s Investors Service expects UK regulations to be more flexible than the European Union’s MiCA rules. This flexibility remains a point of discussion as the finance ministry prepares legislation that will extend existing rules to cryptocurrency companies starting in 2027. Does the UK’s regulatory approach provide enough stability to prevent a mass exodus of firms to more flexible jurisdictions?
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