From 10 January 2020, the FCA will supervise the anti-money laundering (AML) compliance of certain cryptoasset businesses which, for the first time, will be brought within scope of the UK's Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the MLRs).
Although HM Treasury has not yet published its response to its April consultation on how the MLRs will be amended to transpose the EU's Fifth Money Laundering Directive, 5MLD, the cryptoasset activities that were envisaged by that consultation as coming within scope of the MLRs, once amended, included:
- cryptoasset exchanges;
- cryptoasset ATMs;
- custodian wallet providers;
- issuers of new cryptoassets (for example through ICOs or IEOs); and
- those publishing open source software such as non-custodian wallet providers.
These businesses should therefore be taking all appropriate steps to ensure that they will be in a position to comply with the MLRs with effect from 10 January 2020 in the event that they are brought within scope at that time. This will involve consideration of not only the MLRs themselves, but also (amongst other things) the guidance of the Joint Money Laundering Steering Group, the FCA's Financial Crime Guide for firms, the FCA's guidance on the treatment of PEPs, and FATF's guidance on a risk-based approach – noting that FATF itself made changes to its Recommendations in October 2018 and June 2019 to make it clear that they applied to financial activities involving cryptoassets.
In its recent consultation paper CP19/29 on recovery of the costs of supervising cryptoasset businesses under the MLRs, the FCA has made it clear that, notwithstanding the late publication of the amended MLRs, UK cryptoasset businesses will have to comply with the new regime by 10 January 2020 and will be supervised by that date whether they have registered or not. The ever-increasing scrutiny to which firms operating in this sector are subject suggests that the FCA will be diligent in its supervision activities from a very early stage.
Dentons has extensive experience both of acting for cryptoasset businesses and financial crime compliance projects. Our FinTech and Financial Crime practices are market-leading and recognised in professional directories such as Legal 500.
We are ideally suited to assist your organisation in ensuring that it is compliant with the MLRs. Not only do we have an in depth knowledge of crypto businesses, but we also have extensive experience of designing and implementing tailored AML systems and controls including:
- risk appetite statements;
- financial crime risk assessments;
- AML policies and procedures relating to customer due diligence;
- monitoring processes and procedures;
- record keeping policies; and
- staff training.
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