A Guide to Anti-Money Laundering for Crypto Firms

FCA Chief Outlines Data-Led Strategy Highlighting Crypto Concerns and Regulator Reform

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Nikhil Rathi, the chief executive of the Financial Conduct Authority (FCA), has set out the regulator’s data-led strategy to embrace and mitigate the risks of digital platforms. In a speech delivered at the Peterson Institute of Economics, Rathi outlined the need for “a different type of UK regulator.” Rathi pointed to the FCA’s Digital Regulators Cooperation Forum and newly redesigned operational platform as ways in which it plans to take a more proactive stance and intervene more quickly when financial crime risks are identified. 

Rathi also reiterated the FCA’s position on cryptocurrency, citing its accessibility and cross-border capabilities as areas of particular concern. The FCA plans to “deepen ties on crypto regulation and market developments” with US regulators as part of its regulatory approach to crypto.   

Greater clarity needed for crypto firms

The viability of cryptocurrency platforms has been under much scrutiny by the FCA, having been investigated by the regulator since 2018. Earlier this year, the FCA held two Crypto Sprints, the results of which told the FCA that firms wanted existing rules and tools should be used where possible. Furthermore, some participants suggested establishing a self-regulatory organization to provide greater clarity for firms before formal regulation takes effect.

While Rathi noted introducing new regulations is “a matter that is not up to us to decide,” the FCA’s collaborative approach to market developments is likely to further affect rules for stablecoins and central bank digital currencies. At the US-UK Financial Innovation Partnership earlier this year, both countries agreed to continue exchanging views on these topics and share information on the underlying technology that could help firms remain compliant. 

However, compliance consultancy Bovill has called for further clarity on the FCA’s expectations for crypto firms in light of only 13% of firms being successful in their application for clearance under the fifth Anti-Money Laundering Directive (5AMLD). Introduced in January 2020, 5AMLD classified cryptocurrency exchanges as “obliged entities,” requiring crypto service providers to perform additional checks on customers and obligating them to submit suspicious activity reports (SARs).

Regulator reform

Rathi also noted changes the FCA made to its systems infrastructure to improve fraud detection. In moving some of the regulator’s core systems to the cloud, over 50,000 firms and tens of thousands of users were transferred to a new regulatory data platform. “Using our data lake, we aim to more swiftly identify, connect and react to firm and market issues,” said Rathi.

The FCA’s environmental, social, and governance (ESG) strategy was also highlighted by Rathi. The FCA aims to promote awareness of climate change, work with firms to manage sustainability risks, and support global efforts to transition to a low carbon economy in line with the UK’s net zero policy.

After receiving criticism concerning staffing shortages, the FCA has shared that 500 new positions have been filled this year, with a further 1000 roles expected to be filled by the end of 2022. Along with the latest IT systems, additional staff is set to increase the FCA’s analytical capacity, which is listed as one of the core elements of the government’s suspicious activity report (SAR) reform program.  

Compliance staff should remain informed of discussions between UK and US regulators, bearing in mind the FCA’s aim of creating a “global financial system that promotes innovation, competition and economic growth” through collaboration. 

 

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Originally published July 22, 2022, updated July 22, 2022

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