Young and small cryptocurrency businesses will pay lower registration fees than big companies, the United Kingdom’s financial watchdog has decided after consultations with members of the industry. The revised fee scheme takes into account the firms’ income to determine the amount they’ll be charged to cover supervision costs.
Also read: Singapore Introduces Licensing for Crypto Platforms, New Payment Services Act Now in Force
Two-Tier Fee Scheme Replaces Proposed £5,000 Flat Charge
According to recently announced amendments to the registration regime, small crypto companies will pay £2,000 (around $2,600) for their applications while those with turnover from crypto-related activity exceeding £250,000 ($325,000) will face a higher fee of £10,000 ($13,000). The new two-tier system replaces the flat-rate charge of £5,000 that was proposed last year.
In October, the U.K.’s Financial Conduct Authority (FCA) issued a consultation paper with its proposals for recovering the oversight costs from the crypto sector under the country’s updated regulations transposing EU’s AMLD5. Since Jan. 10, the agency has been the anti-money laundering and counter-terrorist financing supervisor of businesses operating with digital assets. The changes were made by the FCA Board on the same date and came in force on Jan. 13. The handbook notice was published on Jan. 31.
The FCA, which is funded by the fees and levies from the firms it regulates, had estimated it would need to collect a total of £400,000 ($520,000) from 80 potential applicants for the costs of the regulatory gateway. The revision of the application fees comes after the authority received 29 consultation responses and held a meeting with crypto businesses. The authority details:
A strong message from a roundtable meeting with cryptoasset businesses on 18 October 2019, backed up by many of the written consultation responses, was that our proposed registration charge of £5,000 would be too high for small firms and startups.
The Financial Conduct Authority provides some examples from the feedback it received which influenced its decision. The chief executive of one of the companies shared that a registration fee of £5,000 would’ve been almost as much as his entity spent during the first two years of its launch. Representatives of another company noted that the initially proposed application charge equals the six-month profit from one bitcoin ATM.
Compliance Expenses Can Reach 20% of Revenues
The FCA acknowledges that some of these small businesses face losses in their early years and that a higher registration fee might push them to either cease operations or relocate to more favorable jurisdictions. The administration notes, however, that according to an earlier review conducted in 2014, direct regulatory fees represented around 3% to 4% of firms’ revenue. At the same time, indirect compliance costs were at 16% for applicants with revenue up to £250,000.
Some of the companies that provided feedback also noted that the fee proposed by the FCA was higher than a similar charge applied by the HM Revenue & Customs, Britain’s tax service, for anti-money laundering supervision. Others have expressed doubts regarding the cost of the regulatory gateway, noting that it’s unclear how the FCA came to the £400,000 figure.
Respondents also asserted that the FCA had underestimated the size of the sector that might have much more than 80 entities, given that even already registered financial services companies will be required to apply and pay the new fee if they want to conduct cryptoasset activities. To these concerns, the regulator replies with a promise to “keep these charges under review and may consult on amending them once we have greater experience of the industry and are registering new businesses only.”
The financial authority insists that late registrants won’t enjoy any advantages. “All cryptoasset businesses trading on 10 January 2020 are subject to 5MLD and are required to be registered with the FCA by 10 January 2021. We have warned that we cannot guarantee to give a decision by then if businesses apply after 30 June 2020,” Handbook Notice 73 reads. In other words, if a business files its application too late, there’s a risk that it might not be registered by Jan. 10 and would have to cease operations until its status is determined.
What’s your opinion about the U.K.’s registration process for crypto companies and the applicable fees? Share your thoughts in the comments section below.
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