UK’s Bold Move: Revamping Crypto Rules to Fight Money Laundering

Last Updated on March 13, 2024

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Key Takeaways:

  • The UK Treasury has proposed updates to anti-money laundering regulations focusing on the crypto sector, aiming to reduce regulatory burdens and ensure efficient regulation.
  • The changes suggest bringing all crypto asset service providers under the oversight of the Financial Conduct Authority (FCA), streamlining the regulatory process by eliminating the need for separate MLRs authorization.
  • The proposed expansion of the Financial Services and Markets Act would include additional crypto-related activities, requiring non-FCA supervised crypto assets to register with the FCA for supervision.

The UK Treasury has initiated a public discussion on proposed adjustments to anti-money laundering regulations, with a significant focus on the crypto sector.

HM Treasury consultation paper
HM Treasury consultation paper. Source:

These proposals emerge from a comprehensive 2022 review of the existing Money Laundering, Terrorist Financing and Transfer of Funds Regulations. Aimed at refining regulation, the government emphasizes reducing regulatory burdens, preferring regulation as a last resort, and ensuring that regulatory bodies remain efficient, responsive, and accountable.

HM treasury 2022 review
Consultation paper on the 2022 review of UK’s AML/CTF regulations. Source:

The consultation paper argues for the effectiveness of these regulations only in the presence of a strong supervisory framework. To this end, it suggests several modifications in how crypto asset service providers are overseen, highlighting the potential for smarter, future-proofed regulations.

Currently, the Financial Conduct Authority (FCA) oversees certain entities under both the existing regulations and the Financial Services and Markets Act, with a distinct approach for those exclusively under its purview.

The proposed changes would bring all MLRs-regulated firms under FCA regulation, eliminating the need for separate MLRs authorization.

FCA warns firms over anti-money laundering violations
FCA warns firms over anti-money laundering violations. Source:

The scope of the Financial Services and Markets Act, which currently includes crypto assets involved in regulated activities or financial instruments, will expand to encompass activities like running a crypto exchange and custody services. Crypto assets outside the FCA’s remit would need to register with the FCA for MLRs supervision.

The consultation highlights differences between assessments made under the current frameworks, particularly concerning who can control a business and the criteria for such control. It opens the floor for discussion on whether to maintain two separate control standards or to align the MLRs requirements more closely with those of the FSMA, indicating a shift towards streamlined, unified regulatory standards.

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