The vast majority of crypto firms seeking to do business in the UK fail basic checks needed to operate, say regulators.

Around 85 per cent of companies that applied to the Financial Conduct Authority (FCA) to register were ‘unable' to meet the minimum standards required.

This included measures to combat money laundering and terrorist financing.
The revelations prompted MPs to warn that parts of the industry resemble the ‘Wild West'.

The comments came as MPs on the Treasury Select Committee conduct an inquiry into the sector after high-profile scandals, including the collapse of crypto exchange FTX. 

In a letter to the committee, the FCA said its ‘robust' approach meant just 15 per cent of applicants were granted registration.

It identified ‘significant failures' in areas such as customer due diligence, risk assessments, transaction monitoring and governance.

And it added that key personnel often lacked ‘appropriate knowledge, skills and the experience to carry out their roles and control risks effectively'.

The FCA also noted that in a small number of cases it identified ‘likely financial crime or direct links to organised crime' and referred crypto firms to law enforcement agencies. 

But its checks only apply to crypto firms wanting to domicile themselves in the UK and use the British financial system.

On the whole, the sector is unregulated in Britain, with the FCA only advising that those willing to invest in digital currencies should be ‘prepared to lose all your money'.

The lack of rules mean that non-UK-based crypto firms can still market their products in Britain without the need to follow any guidelines, even those around money laundering and terrorist funding.

Instead, they would be subject to the laws of the jurisdiction in which they are based - laws which can diverge wildly from those in Britain.

The FCA's revelation comes as MPs conduct an inquiry into the regulation of the sector.

‘These statistics have not disabused us of the impression that parts of this industry are a Wild West,' said Treasury committee chairman Harriett Baldwin. 

The crypto sector has been roiled by high-profile collapses as the price of bitcoin and other popular cryptocurrencies plummeted amid the global economic downturn and rising interest rates.

Among the most notable of these was FTX, which abruptly crashed into bankruptcy in November before the arrest of its founder Sam Bankman-Fried in the Bahamas the following month.

The 30-year-old former billionaire is currently under house arrest in the US, awaiting trial on allegations that he led ‘one of the biggest financial frauds in American history'.

FTX's collapse is estimated to have affected thousands of people in Britain, with the FCA noting that 8 per cent of its 1m customers were in the UK, equivalent to 80,000 people.

Meanwhile, other players are under increased regulatory pressure, with US exchange coinbase fined £2.9million by the Dutch central bank this week for failing to obtain the proper registration before offering its services there.

Coinbase is considering appealing against the penalty.

Warnings of regulation have also begun to grow louder amid signs crypto markets are starting to recover, raising fears a new ‘boom-bust' cycle could be beginning.

The price of bitcoin has jumped by nearly a third in the last month, while rival digital currency ethereum has risen 27 per cent.

But both remain well below record highs reached in 2021.