The UK Financial Conduct Authority (FCA) has issued a warning to cryptocurrency businesses that have not complied with its new registration requirements. The FCA said that many firms have failed to engage with the regulator or submit complete applications, putting them at risk of enforcement action.
The FCA introduced a new registration regime for crypto asset service providers in January 2020, as part of the UK’s implementation of the EU’s Fifth Anti-Money Laundering Directive (5AMLD). The directive aims to prevent the use of cryptocurrencies for money laundering, terrorist financing and other illicit activities. The FCA is responsible for overseeing the compliance of crypto firms with the new rules, which include conducting customer due diligence, monitoring transactions and reporting suspicious activity.
The fifth anti Money Laundering directives (5AMLD) are a set of legal measures adopted by the European Union (EU) to strengthen its framework for preventing and combating money laundering and terrorist financing. The 5AMLD came into force on 10 January 2020 and introduced several changes and enhancements to the previous directives, known as the fourth anti Money Laundering directives (4AMLD).
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The main objectives of the 5AMLD are to:
Increase transparency of financial transactions and ownership of legal entities and trusts
Expand the scope of the directives to cover new sectors and activities, such as virtual currencies, prepaid cards and art dealers.
Enhance cooperation and information exchange among authorities and financial intelligence units.
Address emerging risks and vulnerabilities, such as the use of anonymous offshore structures and complex financial products.
Some of the key amendments that the 5AMLD introduced are:
The creation of a centralized register of bank account ownership information in each Member State, accessible by competent authorities and financial intelligence units
The extension of customer due diligence (CDD) requirements to providers of exchange services between virtual currencies and fiat currencies, as well as custodian wallet providers
The lowering of the threshold for identifying holders of prepaid cards from EUR 250 to EUR 150, and the prohibition of anonymous prepaid cards issued in third countries.
The inclusion of art traders as obliged entities when the value of transactions or series of linked transactions amounts to EUR 10,000 or more.
The establishment of a list of prominent public functions by each Member State and by the European Commission, to facilitate the identification of politically exposed persons (PEPs)
The improvement of access to beneficial ownership information of legal entities and trusts by the public, subject to certain conditions
The harmonisation of the enhanced due diligence (EDD) measures for high-risk third countries identified by the European Commission
The 5AMLD represents a significant step forward in the EU’s efforts to combat money laundering and terrorist financing, as it addresses some of the gaps and weaknesses identified in the previous directives. However, it also poses new challenges and obligations for obliged entities, such as banks, financial institutions, lawyers, accountants, estate agents and others, who have to comply with the updated rules and ensure effective implementation.
Moreover, the 5AMLD is not the final stage of the EU’s AML/CFT regime, as a sixth anti Money Laundering directive (6AMLD) has already been adopted and will apply from 3 December 2020, introducing further changes such as a harmonized list of predicate offences and tougher sanctions.
According to the FCA, more than 90% of the firms that have applied for registration have either withdrawn their applications or been rejected by the regulator. The FCA said that many firms have not provided sufficient information or evidence to demonstrate that they have effective systems and controls in place to meet the regulatory standards. The FCA also said that some firms have not engaged with the regulator at all, despite being required to do so by law.
The FCA warned that crypto firms that operate without registration are breaking the law and may face civil or criminal penalties. The FCA also urged consumers to check whether a crypto firm is registered with the regulator before using its services, and to be aware of the risks and challenges of investing in crypto assets.
The FCA’s warning comes amid a growing interest and demand for cryptocurrencies in the UK and around the world. According to a recent survey by Finder, 19% of UK adults own some form of cryptocurrency, up from 9% in 2019. However, the FCA has repeatedly cautioned that crypto assets are highly volatile, complex and speculative, and that investors should be prepared to lose all their money.
The FCA is not the only regulator that is cracking down on crypto firms that fail to comply with anti-money laundering rules. In June, the Financial Action Task Force (FATF), an intergovernmental body that sets global standards for combating money laundering and terrorist financing, issued revised guidance for crypto asset service providers, urging them to implement effective measures to prevent and detect illicit activity. The FATF also said that it will conduct a review of the implementation and impact of its guidance by June 2024.
