Wild West crypto firms fail FCA corruption checks

The vast majority of crypto companies seeking to do business in the UK fail the basic checks necessary to operate, regulators say.

About 85 percent of companies that applied to the Financial Conduct Authority (FCA) “failed” to meet the required minimum standards.

This included measures to combat money laundering and terrorist financing. The revelations led MPs to warn that parts of the industry resemble the ‘Wild West’.

The comments came as MPs on the Treasury Select Committee conducted an inquiry into the sector following high-profile scandals, including the collapse of crypto exchange FTX.

In a letter to the committee, the FCA said its “robust” approach meant only 15 percent of applicants were registered.

It identified “significant failures” in areas such as customer research, risk assessments, transaction monitoring and governance.

And it added that key personnel often lacked “the right knowledge, skills and experience to perform their duties effectively and manage risks.”

The FCA also noted that it identified “probable financial crime or direct links to organized crime” in a small number of cases and referred crypto companies to law enforcement agencies.

But the controls only apply to crypto companies that want to establish themselves in the UK and use the UK financial system.

In general, the industry is unregulated in Britain, with the FCA only advising that those looking to invest in digital currencies should “be prepared to lose all their money.”

The lack of regulations means that non-UK-based crypto companies can still market their products in Britain without having to follow any guidelines, even those related to money laundering and terrorist financing.

Instead, they would be subject to the laws of the jurisdiction in which they are located – laws that may differ vastly from those in Britain.

The FCA’s revelation comes as MPs conduct an inquiry into the regulation of the industry.

“These statistics have not taken away from our impression that parts of this industry are the Wild West,” said Treasury Committee Chairman Harriett Baldwin.

The crypto sector has been rocked by high-profile collapses as the price of bitcoin and other popular cryptocurrencies plummeted amid the global economic downturn and rising interest rates.

One of the most notable of these was FTX, which abruptly filed for bankruptcy in November before its founder Sam Bankman-Fried was arrested in the Bahamas the following month.

The 30-year-old ex-billionaire is currently under house arrest in the US, awaiting trial on allegations that he spearheaded “one of the largest financial frauds in American history.”

The collapse of FTX is estimated to have affected thousands of people in Britain, with the FCA noting that 8 per cent of its 1 million customers were in the UK, equivalent to 80,000 people.

Meanwhile, other players are under increased regulatory pressure, with the Dutch central bank this week fined the US central bank £2.9m for failing to obtain proper registration before offering their services there.

Coinbase is considering appealing the fine.

Regulatory warnings are also starting to get louder amid signs that crypto markets are starting to recover, raising fears that a new boom-bust cycle could begin.

Bitcoin’s price is up nearly a third in the past month, while rival digital currency ethereum is up 27 percent.

But both remain well below the record highs of 2021.