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FCA’s proposed changes to AML reporting could catch out crypto exchanges

Earlier this week the FCA announced proposals to extend anti-money laundering reporting requirements in its financial crime controls to include virtual currency exchanges, such as all cryptoasset exchange providers and custodian wallet providers. The aim of the change is to strengthen AML defences.

Background

 

In July 2016, the FCA introduced an annual financial crime reporting obligation for certain firms. This gave the FCA information on a range of indicators that reflect the potential money laundering risk of the firm, based on its regulated activities and the nature of its customers.

The FCA’s current obligations require submissions of annual financial crime reports based on:

  1. firm type, irrespective of revenue threshold (e.g. banks, building societies, investment advisers and other finance firms); and
  2. activity type and total annual revenue of £5 million or more (e.g. intermediaries, e-money institutions and consumer credit firms).

Proposed changes

The FCA is now reconsidering the revenue threshold and proposes broadening its net to include firms, “that carry on regulated activities that we consider potentially pose higher money laundering risks.” This applies to firms or business that the FCA supervise under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (“MLRs“).

The plans also require entities such as those that advise on investments and hold client money, as well as those that manage investments, to submit the updated reports. A new category of firms, within the scope of the FCA’s obligation, are cryptoasset exchange providers, which include businesses that exchange virtual money or cryptoassets or arrange their exchange.

Finally, the FCA plan to remove the following activities from the scope as they are no longer considered as falling within the MLRs:

  1. home finance mediation activity; and
  2. making arrangements with a view to transactions in investments.

Comment

The FCA’s proposal may come as no surprise to some given the rise of people who have invested in cryptocurrencies, in addition to the July announcement by HM Treasury, which plans to give the FCA “greater oversight over adverts issued by unauthorised businesses, including those that promote cryptoassets.”

The FCA are seeking comments on their proposal by 23 November 2020.

© Copyright 2020 Squire Patton Boggs (US) LLPNational Law Review, Volume X, Number 241
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About this Author

Garon Anthony Litigation Attorney Squire Patton Boggs Birmingham, UK
Partner

Garon is a partner in the Litigation Practice Group. He advises clients across the full range of commercial dispute issues, including cyber liability/data breach, professional negligence, banking, pensions and insurance.

Garon regularly acts for clients who are subject to investigations or disciplinary proceedings by national and international regulators, including most recently the Financial Conduct Authority, the Financial Reporting Council and the Dubai Financial Services Authority.

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