Navigating FCA Cryptoasset Regulation: How to Register as a CASP
The Financial Conduct Authority (FCA) has established stringent regulations for cryptoasset businesses in the UK to combat money laundering and terrorist financing. This guide is for owners, senior managers, and directors of UK startups, established firms, and international cryptoasset companies looking to expand into the UK. Please find below a detailed guide as to how to navigate the FCA's requirements and successfully register as a Cryptoasset Service Provider (CASP).
Understanding the Regulatory Framework
Since 10 January 2020, the FCA has been the supervisory authority for Anti-Money Laundering and Counter-Terrorist Financing (AML/CTF) regulations for UK cryptoasset businesses. This role was mandated by the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs), amended to incorporate the EU’s 5th Money Laundering Directive (5AMLD) and recommendations from the Financial Action Task Force (FATF).
Scope of Activities under MLRs
Cryptoasset businesses must register with the FCA if they engage in any of the following activities:
Exchanging fiat currency for cryptoassets or vice versa
Providing custodian wallets for storing cryptoassets
Exchanging one cryptoasset for another
Operating cryptoasset ATMs
Facilitating peer-to-peer cryptoasset exchanges
Participating in Initial Coin Offerings (ICOs)
CASP Registration: Documentation Requirements
To register as a CASP, firms need to submit comprehensive documentation to the FCA, which includes:
Programme of Operations: Detailing the specific cryptoasset activities and their locations to determine if the business activities are carried out in the UK.
Business Plan: Outlining business objectives, customer base, employee details, governance structure, and financial projections. This should provide a clear picture of the firm’s strategic direction and resource allocation.
Structural Organisation: Describing the firm’s internal structure, including any outsourcing arrangements. The FCA may request copies of outsourcing contracts to ensure compliance.
Systems and Controls: Providing details of the IT systems and security policies in place to manage and secure cryptoasset transactions.
Individuals, Beneficial Owners, and Close Links: Information about directors and key management personnel, demonstrating their competence, reputation, and suitability for their roles. The firm must appoint an individual responsible for AML/CTF compliance.
Governance Arrangements: Details of internal control mechanisms and measures to manage AML/CTF risks. This includes a description of the governance framework and compliance protocols.
Key Insights from FCA Feedback on Applications
The FCA has provided extensive feedback on the quality of applications they receive for cryptoasset registration. This feedback, up to date as of 1 July 2024, highlights common pitfalls and best practices, offering invaluable guidance for firms seeking successful registration.
By understanding the FCA's expectations and recurring issues in poor applications, businesses can better prepare their submissions. This section delves into critical insights from the FCA, emphasising the importance of thorough documentation, detailed business plans, robust systems and controls, and the necessity of qualified personnel in achieving compliance.
Common Issues in Poor CASP Applications
Incomplete Documentation: Many applications fail due to missing or incomplete documentation. Ensure all required information is provided.
Lack of Detail: Applications often lack sufficient detail in business plans, especially concerning financial projections and customer demographics.
Inadequate Systems and Controls: Poorly defined IT and security systems can lead to rejection. Detailed descriptions of these systems are essential.
Unqualified Personnel: Applications listing directors or managers without appropriate qualifications or experience in AML/CTF compliance are frequently rejected.
Characteristics of Good CASP Applications
Comprehensive Documentation: Successful applications are thorough, with all required documents accurately completed and detailed.
Detailed Business Plans: Clear and detailed business plans that outline the firm's strategy, market analysis, and financial forecasts.
Robust Systems and Controls: Well-documented IT systems and security measures to handle cryptoasset transactions securely.
Qualified Management: Directors and senior managers with proven experience and knowledge in AML/CTF compliance.
MLRO Requirements
The Money Laundering Reporting Officer (MLRO) plays a crucial role in ensuring a firm's compliance with AML/CTF regulations.
The FCA expects the MLRO to be suitably qualified and experienced, with a clear understanding of the regulatory environment and the risks associated with cryptoassets. The MLRO must implement effective controls, oversee the firm’s compliance with AML/CTF requirements, and ensure that the business has robust internal policies and procedures. Additionally, the MLRO should have the authority and resources needed to carry out their responsibilities effectively.
For a successful application, firms must provide comprehensive information about their MLRO, demonstrating their qualifications, experience, and ability to manage AML/CTF risks. The FCA's feedback indicates that applications often fall short when the MLRO lacks relevant experience or when the firm's AML/CTF framework is inadequately detailed. Therefore, appointing a competent MLRO and clearly documenting their role and responsibilities is vital for compliance.
FCA CASP Application Statistics
Alongside the common issues and characteristics of a good CASP application, the FCA also included some statistics within their feedback. These are up to date as of 1 July 2024.
| Last month | Previous 12 months | Since Jan 2020 | |
|---|---|---|---|
| Applications received | 2 | 30 | 349 |
| Applications determined | |||
| Registered | 0 | 4 (13%) | 47 (14%) |
| Rejected | 0 | 7 (22%) | 37 (11%) |
| Withdrawn | 1 | 18 (56%) | 237 (71%) |
| Refused | 0 | 3 (9%) | 13 (4%) |
| Total | 1 | 32 | 334 |
Registration Process and Timeline
Initial Application: Submit a complete application with all required documentation. The FCA may request additional information if necessary.
Review Period: The FCA has a three-month period to assess the application once all required information is submitted.
Communication: Notify the FCA of any material changes or inaccuracies in the application as soon as possible to avoid delays or rejections.
Registration Fee: Ensure the registration fee is paid, as the FCA will not consider the application until the fee is settled.
Practical Tips for a Smooth Registration
Thorough Preparation: Ensure all documentation is complete and accurately reflects the business operations.
Regular Updates: Keep the FCA informed of any significant changes during the application process.
Professional Guidance: Consider engaging experts to navigate the complexities of FCA registration.
CASP Registration: How Can Lagom Consulting Help?
Lagom Consulting specialises in assisting firms to expand into the UK. We understand the regulatory requirements financial services firms need to meet and can connect you with key suppliers (such as law firms, crypto specialist compliance consultancies, recruiters, accountants, crypto-friendly banking providers etc.) through our Expansion Concierge Support.
Click the button below and complete the form to book a consultation with our team.
Navigating FCA cryptoasset regulation can be challenging, but with thorough preparation and the right support, your firm can achieve successful registration and compliance.
Who are Lagom Consulting?
At Lagom Consulting, we pride ourselves on being more than marketing and management consultants; we are your strategic allies in building marketing strategies to market into financial services market.
Our ethos centres around delivering first-class service, underpinned by a hands-on approach that melds practical problem-solving with time-tested marketing solutions. We recognise that effective marketing is an ongoing journey, not a one-off exercise. We steer clear of ‘random acts of marketing’, opting instead for a comprehensive and sustained approach.
Working with Lagom Consulting means gaining more than a consultant; it means acquiring a partner committed to your enduring success.