Around 90% of applications from crypto exchanges in the UK are either "withdrawn or refused", FCA chief executive Nikhil Rathi said on Wednesday (8 December), as he argued that some crypto assets have "no intrinsic value" at all.

Speaking before the Treasury Select Committee, Rathi said: "We see a serious link to money laundering and serious organised crime being propagated through crypto exchanges and a culture in many of those organisations that does not respond to the level of systems of controls that we would need from those firms as they are growing."

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The watchdog was accused of sometimes taking up to a year to authorise financial technology firms, meaning smaller businesses could go "out of business" while waiting to be approved.

Rathi was forced to defend the watchdog's application approval process in front of MPs after it was said that, in some cases, an application can take months when they should only take a matter of days.

He highlighted that crypto exchanges, in particular, are an area of concern for the regulator warranting strong due diligence.

"Some of these crypto assets we do not believe have intrinsic value. They have been a vector for serious organised crime and money laundering and anyone invested in them must be ready to lose all their money," he said.

"There are significant risks attached... anything related to crypto should not be entitled to compensation."

FCA chair Charles Randell said that whenever he sees advertising for cryptocurrencies he questions what can be done, but the issue is out of the regulator's hands.

All the FCA can do about crypto advertising is make the Advertising Standards Authority aware of its concerns, said Randell.

Fintech applications

Meanwhile, one MP noted that delays in fintech applications "will be frustrating for big companies, but for smaller companies it is existential, if they do not get the approvals they may simply go out of business".

Anthony Browne MP said: "One of the main areas of complaint from financial technology companies - and I know this applies to other companies as well - is about delays in authorisation, and we have been given various examples of this." 

He questioned whether the FCA was "proportionately" vetting smaller firms, adding that taking "a year for an authorisation that can be done in weeks is frustrating".

"For small companies the regulation burden hits them a lot harder than big companies, and the burden can act as a barrier to entry," said Browne.

"To regulate a company that's a global multinational in the same way you do a fintech with half a dozen staff does not seem proportionate."

Nikhil Rathi said: "We have to choose our themes, there's a limit to how many unfettered new ideas we can sponsor through at any one time."

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He said the regulator is working to address the backlogs by recruiting 100 employees in those areas while looking to make the process more digital in the medium-term.

"In the area of fintech we see a whole range of different firms, some that are genuinely innovative and competitive and we want to help them grow. Others are more challenging," he stated.

Rathi also acknowledged the challenges presented by a changing financial landscape. According to the FCA chief, any changes to the regulatory framework made now may have to be tweaked once again in a matter of a few years.

"In a world where we may one day move towards a digital currency, we are talking about a potentially fundamentally different financial system and we will need to be able to respond quickly to that," said Rathi.