As published on decrypt.co, Monday 24 August, 2020.
The UK’s top financial regulator wants to force all cryptocurrency exchanges and wallet providers operating in the country to produce reports about potential money laundering.
In a policy proposal published today, the UK’s Financial Conduct Authority (FCA) said that it plans to extend the obligations it imposes on firms to inform it about money laundering risks. The FCA started requiring annual crime reports of financial institutions back in 2016.
Under the new proposal, all "cryptoasset exchange providers and custodian wallet providers" must provide the FCA with a report about their financial crime risk, "irrespective of their total annual revenue."
The proposal is, for now, just that—a proposal. The FCA is seeking comments until November 23 and plans to publish a policy statement, which includes its new rules, by the first quarter of 2021.
According to the proposal, information to be requested includes the number of the firm’s customers in "high-risk" jurisdictions, the number of customers who "refused or exited for financial crime reasons," and "the top three most prevalent frauds."
Under the proposed rules, crypto companies must provide the information "from their next accounting reference date after 10 January 2022." This date is a little later than other companies since cryptocurrency companies have until January 10, 2021, to register with the FCA.
Cryptocurrency companies are often registered in tax havens such as the Cayman Islands, but they often operate all over the world. The FCA defines "operates" as "where the firm carries on its business or has a physical presence through a legal entity."
The FCA stated "there may be additional reporting obligations that we might require of cryptoasset businesses in the future."
The FCA wants to harvest the data from these companies to ensure that its "resources are targeted at firms that carry on activities that pose potentially higher [money laundering] risks."
The additional data requested would be the latest in a string of obligations imposed on cryptocurrency companies by regulators. The European Union in January launched the fifth anti-money laundering directive (AMLD5), which required cryptocurrency companies to take greater action to stop money launderers.
And the Financial Action Task Force, an international financial crime watchdog, “recommended” (in practice, demanded, since the FATF would brand non-compliant countries with an unsightly black mark) that crypto companies share information about their customers when processing transactions to other crypto companies. The recommendation was supposed to be enforced by June, but the FATF has given its members—most of the world’s major economies—some slack because of the pandemic.