AML/CFT for crypto service providers

How to comply with the FCA's AML/KYC standards and mitigate compliance risk?

Individuals and businesses engaged in cryptoasset activities in the UK have to register with the FCA for anti-money laundering purposes. Whether or not a business is "carried on by way of business in the UK" depends on the nature and business model of the activity being undertaken.

The UK's Money Laundering Regulations (Money Laundering and Terrorist Financing (Amendment) Regulations 2019, the “ML Regs”) governs the AML/CFT regulations.

These amendments incorporate international standards set by the Financial Action Task Force (FATF)  and to transpose the EU's 5th Money Laundering Directive.

Besides implementing updated FATF Standards, the purpose of such amendments is to keep the UK’s regulatory framework updated to meet latest threats and concerns. And thus, in view of the rapid industry changes in 2021, the HM Treasury launched a consultation seeking the public’s views on proposed amendments to the current MLRs. Some of the broad agendas of these amendments are as followed:

• Modifying the scope of MLRs to incorporate changes in risk assessment methods and observations thereof.
• Clarifying changes to better regulatory clarity and stronger supervision
• Expanding certain MLRs to align them with updated FATF requirements, thus ensuring UK’s position at par with international standards
• Collecting and sharing information
• Implementing FATF recommendations concerning crypto-asset transfers to mitigate ML/TF risks.

Virtual Asset Service Providers (VASPs) functioning in the UK are required to register with the FCA and follow its guidance and rules on anti-money laundering, including adhering to the international standards set by FATF and complying with ML Regs.

Though the FCA’s crypto registration is not called a licensing regime under the law, it is regarded as similar to a license, as cryptoasset providers (such as cryptocurrency exchanges and custodian wallet providers) are not able to function in the UK without it.

In order to make a successful application to the FCA, you will need to present your businesses AMl/CFT framework and risk assessment, along with details on how you aim to mitigate those risks. For a full list of information required by the FCA for the purposes of registration, refer here.

A cryptoasset business seeking registration must demonstrate that it capable of effectively managing money laundering and terrorist financing risks proportionate to the size and nature of the business’ activities.

A collaboration between Merkle Science & FinReg