FCA to ask crypto firms to report on money laundering

The UK’s Financial Conduct Authority, in a new proposal, has outlined a policy that will require all UK crypto exchanges to disclose their money laundering data

The UK’s top financial conduct and prudential body published a proposal yesterday t0 oblige UK crypto companies to provide reports about potential money laundering activities.

In practice, the proposal will force all cryptocurrency wallets and exchanges to share information regarding potential money laundering. Since 2016, the FCA has collected reports concerning money laundering risks from financial organisations. Now, the body wants to extend these obligations to crypto companies.

The new proposal stipulates all “crypto-asset exchange providers and custodian wallet providers” must submit to the FCA a report about their financial crime risk, “irrespective of their total annual revenue”.

Still in its early stages

Of course, it remains a proposal at the moment with the FCA laying out the plan for comments until November 23. After this, the FCA will be looking to publish a statement containing the new rules for early next year.

Crypto firms will need to provide: the top three prevalent frauds they observe, the number of customers who “refused or exited” because of financial crime reasons and the number of customers in “high-risk” jurisdictions.

In addition, the proposal stipulates that crypto exchanges and wallets should provide this information ‘from their next accounting reference date after January 10 2022. However, there have been a few issues regarding this date. The main concern has been that it is later than other companies because crypto firms have a registration deadline (with the FCA) of January 10 2021.

Although crypto firms are mostly registered in well-known tax havens like the British Virgin Islands and the Cayman Islands, their operations remain global. According to the FCA, the region where a crypto firm operates is defined as “where the firm carries on its business or has a physical presence through a legal entity”.

Other obligations in place

The UK financial regulator also added that there might be other reporting obligations that are needed. This is the most recent policy in a string of obligations being imposed by financial regulators on crypto firms.

Back in January, the European Union (EU) implemented the fifth anti-money laundering directive. This directive urged crypto firms to be sterner in their actions to put a halt to money laundering.

The Financial Action Task Force (FATF) also recommended that the firms share information about their customers when handling transactions that involve other crypto companies. This was set to be implemented in June, but on account of the coronavirus pandemic, the implementation date was pushed.