Crypto and anti-money laundering regulation
In a recent article in FinExtra, Gherson’s white-collar crime and regulatory team discuss the important question of whether it is time for the UK to introduce a bespoke crypto regulation regime.
In the meantime, the regulation of crypto in the UK is on a piecemeal basis. In a series of blogs Gherson will now explore this crypto regulatory landscape. This initial blog will look at regulation for anti-money laundering (“AML”) purposes.
More broadly, there is currently no wider crypto regulation framework, except in circumstances where there is a cross-over into other areas of regulated financial activity. For example, some cryptoassets may be specified investments for the purpose of the Financial Services and Market Act 2000 (Regulated Activities) Order 2001. They may also be electronic money for the purposes of the Electronic Money Regulations 2011. Finally, since Jan 2021, the Financial Conduct Authority (“FCA”) banned the sale of all crypto derivatives to retail customers. We will explore all these areas in later blogs in this series.
Crypto regulation for anti-money laundering
The risk of cryptoassets being used for nefarious purposes has been well identified. The National Crime Agency (“NCA”) in its 2020 assessment found that previously identified trends regarding cryptoassets and money laundering had become more prevalent in 2019. The NCA noted that UK-based criminals continue to identify new ways of using virtual assets to launder profits, although more traditional methods are still favoured.
Turning then to AML regulation, it is perhaps not surprising that in the UK firms carrying on cryptoasset activity are regulated for AML purposes. The regulations comes through the implementation of the European Union’s fifth Anti-Money Laundering Directive via the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (the “2019 regulations”). The 2019 regulations extended the scope of persons subject to the previous regulations to include cryptoasset exchange providers and custodian wallet providers. The 2019 regulations also appoint the FCA as the supervisor of cryptoasset businesses for AML purposes. The majority of these provisions came into force on 10 January 2020.
Whom do the regulations apply to?
What this means is that cryptoasset exchange providers and custodian wallet providers based in the UK are relevant persons for the purposes of AML regulations and are required to register with the FCA and implement the requisite regulations.
What about jurisdictional scope?
Jurisdictional scope will be applied on a case-by-case basis and in most cases will be triggered by the physical presence of a firm in the UK through which business is conducted. However, there may be other factors and expert legal advice is always recommended. Just because a firm has UK customers does not necessarily mean that it is within the regulations. However, a cryptoasset exchange provider that has an ATM in the UK will be within the scope.
What about the regulations themselves?
The regulations themselves include a requirement that there needs to be a register of applicable firms, that certain reporting requirements are imposed and that cryptoasset businesses demonstrate that they and their owners or officials are fit and proper as a condition of registration. Gherson have recently outlined in more detail some of the specific regulatory requirements to be complied with.
I have heard there have been some issues with the registration process?
Gherson have previously posted a blog on the FCA’s announcement of an extension to the Temporary Registration Regime for cryptoasset businesses and held a discussion on the implications.
In terms of the registration process, the FCA’s original initiative was to have all applicable firms registered by July 2021. However, currently only a handful of businesses are fully registered. The FCA recently announced an extension of the registration process until March 2022. There are currently, therefore, numerous firms with temporary registration and numerous unregistered firms.
Do you need assistance with the regulations and/or the registration process?
To operate in the UK, relevant cryptoasset businesses need to have applied to register with the FCA and they need to adhere to a number of compliance rules. Given that breaches of the AML regulations can attract potential civil or criminal liability and penalties, it is important that firms seeking regulatory approval are aware of all the requirements and have in place robust policies to ensure compliance.
For those who would like advice on this issue, including those who have had issues with the registration process, our specialist regulatory and compliance team can guide individuals and companies through the process. If you have any questions arising from this blog, please do not hesitate to contact us for advice, send us an e-mail, or alternatively, follow us on Twitter, Facebook, or LinkedIn to stay-up-to-date.
The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please don’t hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.
Solicitor in our White Collar Crime Defence Team