Cryptocurrency Update: AML Registration and FCA Intervention in Authorized Crypto Activities | WilmerHale

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Crypto firms clearly remain high on the regulator’s agenda. Two developments should be noted.

Extension of the AML registration deadline. As of January 10, 2020, crypto companies have been part of the regulated industry for money laundering purposes and must register with the FCA. Companies that applied for registration before December 16, 2020 have been placed under a temporary registration regime. On June 3 of this year, the FCA announced that it would extend this regime from July 9, 2021 to March 31 of next year. The move came after many candidate companies failed to implement the standards required under the Money Laundering Regulations. At present, there are only 9 companies that are registered, having met the requirements. More than 70 are on the temporary register. By comparison, there are 111 companies without any registration against which, as Nikhil Rathi noted in a June 22 speech, the FCA will take action if necessary.

Remark

The failure of candidate crypto companies to meet the standards required for AML registration is of concern. Authorized institutions that interact with crypto firms will need to think carefully about how their own AML controls should be tailored, to take into account the additional risk presented by those firms that have not yet been registered.

FCA intervenes to restrict an authorized company. BML is a member of a group company which operates a cryptocurrency exchange based outside the UK. BML is an authorized company. It had inherited its regulatory approvals by acquiring another licensed company and filing a change of control request. In a first lookout dated June 25, the FCA imposed a restriction on BML, under its statutory powers, prohibiting it from carrying out any regulated activity without prior written authorization. It also required BML to prominently display a notice on its website, including the statement that it was “not authorized to engage in any regulated activity in the UK”. The FCA’s intervention was triggered by Supervisory concerns that BNL may have falsely advertised itself as authorized to offer cryptoassets. The company had in fact not registered as a crypto company for anti-money laundering purposes, and in any event, cryptocurrency is an unregulated commodity.

Remark

Despite being an authorized entity, BNL appears to have carried out very little regulated activity in the UK and cryptocurrency is an unregulated commodity. The regulator appears to have feared that BML’s regulatory clearance seal and affiliation with the exchange would lead its UK-based users to mistakenly believe that the exchange (and the underlying products) was regulated in some way or form. of another. The high-risk nature and volatility of cryptocurrency, coupled with the ongoing risk of consumer confusion when unregulated products are tied to licensed companies (as in London Capital Finance), has made the FCA question whether BNL intended to use his permissions. Not satisfied with the responses received, the Supervision decided to impose a formal requirement, in the terms described above. The Regulator’s decision is the expression of its commitment, publicly highlighted in January of this year, to ensure that the regulatory authorizations of companies are up to date and not in excess of what the company actually uses in the conduct of its activities. : “Incorrect or obsolete authorizations increase the risk of harm to consumers. Inaccurate information on business authorizations can mislead consumers about the level of protection offered or lend credibility to unregulated activities ”.1

1 Although not used in the case of BML, it should be noted that as of July 1, the FCA has a new power (article 55JA FSMA) to modify or cancel a part 4A authorization when the company does not carry out any regulated activity for which the authorization relates.

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