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UK Crypto Regulation Spurs Growth in Compliance Advisory Sector

The United Kingdom’s increasingly stringent regulatory environment for cryptocurrencies has given rise to a burgeoning industry of compliance and advisory services. As the UK tightens its grip on crypto-related activities, a handful of companies have managed to navigate the complex regulatory landscape successfully, and their expertise is now in high demand.

The surge in demand for compliance services from crypto companies worldwide can be attributed to recent actions taken by the UK’s financial regulator. In response to the increased need for consumer protection after last year’s crypto market turmoil and the failure of companies like FTX, the Financial Conduct Authority (FCA) imposed stricter regulations on the marketing of digital assets. Unauthorised firms were banned from marketing to UK customers, and this move has sent ripples across the crypto industry.

Over the past two weeks, even major players in the crypto space, such as Binance and Huobi, have found themselves falling short of the UK’s heightened standards. The FCA issued more than 150 warnings about unauthorised promotions by crypto groups in the first week under the new regime. Non-compliance with these rules, which have a global reach, could result in fines or even imprisonment.

This tough stance by the FCA has given rise to a burgeoning market for a select few companies that possess the authority to approve the marketing materials of numerous crypto groups. These firms are entrusted with ensuring that everything from social media posts to business websites complies with the regulations.

Charles Kerrigan, a partner at law firm CMS, commented on the emerging industry, stating, “It’s a smart way of making money as there are very few service providers and many firms that need it.” London-based Archax is one of the three firms granted this responsibility. It has high-profile clients like OKX and Coinbase, two of the world’s largest crypto exchanges. As the demand for compliance services surges, Archax has expanded its team to meet the growing needs of the industry.

The boost in demand for compliance services is expected to have a positive impact on Archax’s financial standing. The digital assets exchange, which is backed by £380 billion investment manager Abrdn, reported a loss of £12.7 million last year. Simon Barnby, Chief Marketing Officer at Archax, noted that their advisory service has become a crucial revenue stream, with fees varying depending on factors such as the number of coins being promoted.

The FCA’s regulatory actions add to the challenges that many crypto companies have already faced in obtaining a place on the regulator’s register for crypto asset services, which oversees standards like anti-money laundering. This regulatory stance has sometimes clashed with political aspirations to position London as a global crypto hub. City ministers have urged the regulator to adopt a more lenient stance, underscoring the tension surrounding the UK’s approach to crypto.

Gateway 21, a startup founded this year, is another company entering the crypto compliance space, dedicated to approving crypto marketing materials in compliance with FCA regulations. Carly Nuzbach Lowery, a former lawyer at Uber, Coinbase, and Copper, noted that the queue for these services has grown longer since the FCA’s list of unauthorised firms went public.

Englebert, a crypto consultancy, is awaiting FCA authorization and has partnered with Helford Capital Partners, a regulated advisory firm, to cater to the demand from digital asset groups seeking compliance approval. Gareth Malna, co-founder of Englebert, pointed out that most potential competitors have been deterred by the regulatory complexities, leaving firms like his with little competition, which has the effect of driving up prices in the market.