Revised AML Policy in the UK: Is your Crypto Business Ready for it?
The viewpoint of the UK’s AML (anti-money laundering) policymakers manifested in the final report of the UK Cryptoassets Taskforce, published in October 2018. Previously, though the financial regulators in the UK advised the crypto investors to be cautious, they didn’t resort to bans or limited prohibitions.
2019 policy statement of the FCA
By the end of 2019, the UK’s Financial Conduct Authority (FCA) came up with a policy statement on crypto exchange software solutions, imposing banking-like controls over crypto assets. The policy required crypto businesses in the country to get registered with the authority by January 10, 2021, or stop their operations. Entities that were required to comply with these instructions included those offering services as a cryptocurrency exchange, peer-to-peer exchange, cryptocurrency ATM, transaction of cryptocurrency, issuance of tokens, and publication of open-source software involving crypto assets.
Crypto-transmitting businesses were required to register the details of their customers, including their proof of address and official photo identification. The FCA terms this ‘customer due diligence’. If a customer fails to produce documents of identity, the services should be denied. They were also required to keep tabs on suspicious transactions.
Firms that fail to comply may be subject to significant fines, public censure, and in cases of employee obstruction of regulatory investigations, up to two years’ imprisonment.
How capable are the crypto organizations to handle this array of stifling restrictions? Ether, Litecoin, or Bitcoin exchange software entities, all are required to comply with these regulatory requirements.
Strict regulations taper off the uniqueness of cryptocurrencies
Strict enforcement of these regulations will clear away several key advantages of cryptocurrency — financial autonomy, confidentiality, and immutability in transactions.
Anonymity is an inherent characteristic of cryptocurrencies. In all crypto transactions, personal information is limited to a pseudonymous string of characters, also called public address. This is designed to facilitate monetary transfers, without revealing personal information of the user.
Sure, there have been cases of money laundering miscreants exchanging digital assets to hide identity. However, regulators should find non-intrusive ways to deal with this issue rather than killing an intrinsic feature of the technology.
Cryptocurrencies are facilitators, not a threat to conventional banking
The FCA shouldn’t work in an arbitrary manner which shows it in a bad light, raising doubts if the rigid stance is meant to eliminate the threat cryptocurrencies may be posing to the banking lobby in the UK. A citadel of banking for decades, the city has been a hotspot of wholesale financial dealings and foreign exchange. The regulator is erring here as it is viewing crypto assets trading detrimental to conventional banking rather than viewing the former as an extended form of financial transactions.
The World Federation of Exchanges has urged the UK’s FCA not to ban the sale of cryptocurrency derivatives to retail customers. The federation has advised the regulatory body to refrain from an outright ban and find alternative modes to enhance consumer protection.
Tech-based cryptocurrencies are the latest entrant into the spectrum of financial products and it is understandable that the law will take some time to catch up. However, even before drafting the rules, they need to modify their outlook towards digital currencies, taking them as a technical advancement on the existing system rather than viewing it negatively.
Antier Solutions is a top-of-the-line provider of white label exchange software and other crypto-related solutions. Feel free to discuss with our team any issue you may be having with compliance.