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The UK’s increasingly tough regulatory regime for cryptocurrencies has sparked a cottage industry in advice and compliance for the handful of companies that have successfully navigated the system.
Demand for help from crypto companies globally to deal with British rules has risen this month after the financial regulator banned unauthorised firms from marketing to UK customers.
In the past two weeks some of the largest crypto service providers, including exchanges Binance and Huobi, have fallen foul of the tougher standards, which are designed to strengthen consumer protections after last year’s crypto market crash and failure of companies such as FTX.
In the first week of the new regime the Financial Conduct Authority issued more than 150 alerts on unauthorised crypto groups’ promotions. Failure to comply with the rules, which apply globally, can lead to fines or imprisonment.
The hardline stance has opened a nascent market for just three companies that are able to sign off the marketing materials of potentially hundreds of crypto groups, from social media posts to business websites.
“It’s a smart way of making money as in there are very few service providers and many firms that need it,” said Charles Kerrigan, partner at law firm CMS.
London-based Archax, one of the three permitted to perform signoffs, has OKX and Coinbase, two of the world’s biggest crypto exchanges, as customers. It has also expanded its compliance team to cover surging demand.
The influx of revenues is also set to boost the fortunes of Archax, which is backed by £380bn investment manager Abrdn. The digital assets exchange made a £12.7mn loss last year, according to accounts filed at Companies House. Simon Barnby, chief marketing officer at Archax, said its advisory service “is certainly a key revenue stream for us at the moment”.
Fees “depend on how many coins they’re promoting, among other things . . . It’s quite a manually intensive process at the start”, Barnby added.
The rules come on top of the struggles many companies have faced in securing a place on the regulator’s register for crypto asset services, which monitors standards such as anti-money laundering.
The agency’s approach has jarred with politicians’ desire to present London as a global crypto hub. The City Minister recently urged the regulator to take a softer stance ahead of the marketing rules coming into force, the Financial Times previously reported, underscoring tensions over the UK’s stance on crypto.
Another start-up, Gateway 21, was founded this year purely to approve crypto marketing ahead of the FCA rules coming into force. “Since that [FCA] list has gone up, the queue’s gotten longer,” said Carly Nuzbach Lowery, a former lawyer at Uber, Coinbase and Copper, a crypto custodian.
It is set to be joined by Englebert, a crypto consultancy that is awaiting authorisation from the FCA, but which has linked up with Helford Capital Partners, a regulated advisory firm, to meet demand from digital asset groups looking for approval.
“Most people who might have done this are scared off,” said Englebert co-founder Gareth Malna. He added that his company and others were “left with no competition which inflates the prices”.