FCA shows its teeth in the fight against crypto-crime | Allen & Overy LLP

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The FCA has made it clear that it will not refrain from taking much-needed action in the crypto-asset arena in the UK. Businesses and consumers alike need to remain alert to the risks (including financial crime risks) associated with cryptoassets as FCA’s expertise and activity in this area continues to grow.

Changing landscape of cryptoassets

Despite their generally prohibitive price, cryptoassets have never had as much social capital among retail investors as they do today. With outsiders like the satirist Dogecoin (self-deprecatingly called the ‘fun and friendly internet currency’) even receiving a Twitter nod from Elon Musk, it’s clear that crypto has become more accessible than ever to the proverbial woman of the world. ‘Clapham Omnibus. .

The GameStop stock trading frenzy of January 2021 was largely driven by members of Reddit’s r / WallStreetBets and showed that retail investors can be a force to be reckoned with when their collective attention is tapped. More recently, Bitcoin has apparently sparked their interest again, precipitated by yet another episode of its all-too-familiar volatility in the wake of redoubled efforts by regulators (particularly in Asia) to prevent financial institutions and payment companies from providing. services related to crypto-currencies.

It remains to be seen how Redditors and other retail investors fare against Bitcoin’s instability, but one thing is for sure: the FCA’s focus on crypto-asset risks and faults increases. While it’s fair to say that the FCA’s powers and appetite for enforcement have yet to match the activity seen in relevant Reddit forums, recent responses to Freedom of Information Act requests as well that the FCA’s own press releases indicate that it is committed to using the powers at its disposal, as well as publicity, to protect consumers.

Scope of the FCA’s powers

The FCA has not shied away from attempting to regulate the crypto-asset space, but there is considerable variation in the extent of the FCA’s jurisdiction and powers in this area.

The FCA has confirmed its view that certain crypto-assets (e.g. security tokens) may fall within its regulatory scope depending on their characteristics, including whether they confer ownership rights or guarantee reimbursement of. a specific amount of money and / or a right to a share of future profits. . Other types of cryptoassets, such as exchange tokens (like Bitcoin), are not subject to financial services regulation, but companies engaging in trading or custodial activities in connection with these tokens will be supervised by the FCA in the UK for money laundering purposes.

As of January 10, 2020, under the Money Laundering Regulations 2017, the FCA has assumed oversight responsibility for UK companies engaged in crypto-asset related activities. As a result, all UK crypto-asset companies must be registered with the FCA, and companies operating without such a registration after January 9, 2021 are committing a criminal offense. The exception here concerns companies to which the FCA temporary registration regime applies, i.e. companies that applied for registration before December 15, 2020 and whose applications have not yet been assessed by the FCA. – these companies will be able to negotiate legally until March 31. 2022, pending the decision on their application. In another easing of its supervisory powers under MLRs, the FCA announced in March 2021 that UK crypto-asset companies are also required to submit annual reports on financial crimes.

FCA action relating to crypto-assets

The FCA banned the sale of crypto derivatives to retail clients in October 2020, and in January 2021, the FCA issued a warning to retail investors of the risks associated with other crypto-asset related investments, stating that those who choose to ‘invest must be prepared to lose the full amount of their investment. It was against this regulatory backdrop that the FCA issued a consumer warning in June 2021 about Binance, a crypto-asset exchange, reminding consumers that Binance is not authorized to undertake regulated activities in the UK. and alerting consumers more generally to promising online and social media advertisements. high returns on investment in crypto-assets or crypto-asset-related products.

In addition to these high profile examples, the FCA has demonstrated its readiness to exercise its supervisory powers in other situations when necessary. Between July 1, 2019 and June 30, 2020, the FCA opened 52 investigations into unauthorized crypto-asset firms (down slightly from the same period the previous year, but up sharply from the sum of two over the two-year period July 1, 2015 to June 30, 2017).

The figures from the first Coronavirus lockdown in the UK are also interesting: between April 1, 2020 and June 31, 2020, the FCA opened 27 investigations into crypto-asset companies falling within the scope of MLRs. The marked increase in inquiries is revealing in a context where digital-based financial crime has had many opportunities to flourish, as the authors sought to take advantage of both government programs and consumers in the disarray of the situation. Covid.

Recent speeches and publications also attest to the FCA’s commitment to ensuring that consumers and markets are protected from the financial crime risks associated with cryptoassets. Mark Steward (FCA Executive Director of Enforcement and Market Watch) called attention to the FCA’s list of unregistered cryptocurrency companies in a recent speech, designed to help consumers and consumers alike. companies authorized by the FCA to identify crypto-asset companies that appear to be operating in the UK. , but who are not registered with the FCA or have not requested such registration.

The regulation of crypto-assets is evolving, so it’s not entirely surprising that the powers of the FCA are still evolving. This does not mean, however, that the FCA is not paying attention to this area. The regulator has been sounding the alarm bells about financial crime and other risks associated with cryptoassets for some time now, and is ready to tackle market participants who seek to abuse cryptoassets to the detriment of the market and of consumers.

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