Overview of New Money Laundering Regulations

In a bid to tackle the perceived threats linked to cryptocurrencies, the United Kingdom’s Treasury has unveiled additional measures. These new Money Laundering Regulations (MLRs) elevate the Financial Conduct Authority (FCA) to the status of the primary overseer in the anti-money laundering (AML) domain for specific crypto activities.

What Do the New MLRs Cover?

According to Therese Chambers, director of Retail and Regulatory Investigations at the FCA, these regulations extend beyond what the Fifth Money Laundering Directive (5MLD) stipulated. They incorporate a more extensive array of actions, such as Initial Coin Offerings (ICOs), effectively broadening the regulatory net.

The EU’s Previous Regulations

The European Union (EU) has already implemented stringent AML regulations, and in July 2018, they enforced the 5AMLD. In a bid to escape these regulations, the crypto exchange, Deribit, made a daring exit from the Netherlands for the sunny shores of Panama in January 2020. Was it the beaches, or regulatory ease? You be the judge!

Cryptocurrencies and Money Laundering Risks

Chambers emphasized that cryptocurrencies pose a significant risk for money laundering. The anonymity they provide allows individuals to transfer monetary value without engaging a financial intermediary. Essentially, think of it as sending cash in the mail—only much more complicated and with a much higher chance of getting caught!

FCA’s Focus: Specific Crypto Activities

The FCA aims to keep a keen eye on the crypto space, particularly targeting exchanges with fiat pairings and custodial wallet providers. Any business delving into these realms must provide the FCA with thorough documentation, including:

• Risk Assessments
• Customer Due Diligence
• Transaction Monitoring
• Record-Keeping
• Suspicious Activity Reporting

Chambers stressed the importance of a robust application process, noting that firms must go beyond just having the right policies. They need to showcase a serious commitment to preventing their platforms from facilitating criminal activities.

The Balancing Act: Innovation Vs. Regulation

Though Chambers argues that consumer protections can bolster innovation, the ever-present cloak of anonymity associated with cryptocurrencies remains a double-edged sword. As the regulatory environment tightens, there’s an ongoing tug-of-war between fostering innovation and ensuring safety in the financial ecosystem.