UK Treasury to overhaul crypto regulations to strengthen AML measures

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The UK Treasury issued a consultation paper outlining amendments to money laundering regulations, which would impact the regulation of crypto assets across various dimensions. These adjustments in registration parameters will streamline supervision processes, combat criminal activities, and bring modifications in the regulatory framework for crypto firms.

These proposed revisions originate from a review of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) conducted in 2022. The current proposals are geared towards implementing "smarter regulation."
 
“This includes minimising regulatory burden and future proofing regulations, making regulation a last resort and not a first choice, and ensuring a well-functioning landscape of regulators that are responsive and accountable.” “Of course, the MLRs can only be effective alongside a robust supervisory regime,” the paper continued. Bearing this in mind, it detailed various potential alterations to the supervision of crypto asset service providers.

Under regulations enacted in 2017, the Financial Conduct Authority (FCA) oversees certain institutions under both the Money Laundering Regulations (MLRs) and the Financial Services and Markets Act 2000 (FSMA).

Institutions regulated under FSMA are not obligated to undergo MLRs registration, whereas most crypto firms, not under FCA supervision, fall under MLRs jurisdiction. As per the proposals in the consultation paper, institutions regulated under MLRs would necessitate FCA regulation but would no longer be mandated to seek MLRs authorisation.

Presently, crypto assets fall under FCA jurisdiction if they are utilised as the underlying asset or property for regulated activities or financial instruments, such as within collective investment schemes. The FSMA's scope will extend to encompass new activities, such as operating a crypto asset exchange and custody. Crypto assets not under FCA oversight will now need to register with the FCA for MLRs supervision.

Distinctions exist between assessments conducted under MLRs and FSMA, notably regarding the individuals eligible for control and the thresholds for such control. The consultation paper raises the question of whether to maintain two distinct standards of control, proposing closer alignment of MLRs requirements with those of FSMA.

The UK Treasury's consultation paper signifies a significant step towards fortifying the country's anti-money laundering efforts within the crypto space. By aligning regulations with evolving market dynamics and bolstering supervisory mechanisms, the proposals seek to instil greater integrity and accountability in the sector. As the crypto landscape continues to evolve, these measures underscore a proactive approach to mitigating financial crime and fostering a more resilient regulatory framework.

Shashank is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist.
Twitter: @bhardwajshash