Scope of FCA’s cryptoasset AML regime unclear

By Rebekah Tunstead | 11 December 2019

The UK's Financial Conduct Authority (FCA) is unsure as to whether international firms conducting cryptoasset activity in the UK will be subject to the country's new anti-money laundering (AML) regulation.

National regulators have until January 10 next year to incorporate requirements under the fifth anti-money laundering directive – the UK is doing this through amendments to the money laundering, terrorist financing and transfer of funds regulations 2017 (MLRs).

HM Treasury has yet to publish its response to a consultation on the regulation and recommendations made by the Financial Action Task Force (FATF), which could see the number of activities overseen by the FCA increased or reduced.

“At this stage because the Treasury hasn’t produced a policy statement and the legislation hasn’t been instated, we aren’t going to confirm the exact scope of the plan as that will be set out by the Treasury, but we understand that the regime will cover firms carrying on UK business. So, that is important to say that when we look at the activities, we also have to make a judgement are you doing that by way of business in the UK?” said Mark Aruliah, technical specialist, FCA on a webinar held by the regulator to provide clarity to the market.

“It is very difficult for us to say at this stage with confidence because we have to see the final legislation. I think we would be looking to look at whether they are doing UK business, and I think we wouldn’t necessarily say just because you have UK clients, it’s a UK business, but we would have to look at everything on a case-by-case basis to see what actually is the business model and what is happening in that instance.”

HM Treasury is still in the process of reviewing responses to the consultation. It will provide a statement following the general election, a spokesperson at the Treaury said in an email.

On January 10, 2020 the FCA will begin supervising cryptoassets businesses for AML and counter terrorist financing. But there is ambiguity regarding which entity in a group structure will have to register and be subject to the new legislation.  

In instances in which a firm has created a separate legal entity to carry out UK crypto activity, it is unclear whether the the parent company or the smaller entity will be required to register with the FCA. 

Firms that start conducting any cryptoasset activity from January 10 next year will have to register with the FCA. Those that are already active in the cryptoasset space will have until October 2020 to apply to register with the FCA. The amended MLRs will come into effect on January 10, regardless of whether a firm has registered with the regulator.

The FCA expects the legislation to go through after the UK general election, and is operating on the basis that the regime will go live on January 10.

As part of its oversight the FCA will conduct onsite inspections on cryptoasset firms, but also said that it could conduct these assessments remotely through tele or video conferencing facilities, and things like share screen technology for system walkthroughs.

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development