The United Kingdom treasury has recently published a consultation paper proposing changes to money laundering regulations that would impact the regulation of crypto assets in various ways.
These proposed changes are a result of a review conducted in 2022 on the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). The focus now is on implementing “smarter regulation,” as stated in the paper. It emphasizes the importance of a strong supervisory regime to ensure the effectiveness of MLRs.
The consultation paper outlines several potential alterations to the supervision of crypto asset service providers. Currently, the Financial Conduct Authority (FCA) oversees certain institutions under both the MLRs and the Financial Services and Markets Act 2000 (FSMA). However, FSMA-regulated institutions are exempt from MLRs registration, whereas most crypto firms are subject to MLRs as they are not supervised by the FCA. The proposals in the paper suggest that MLRs-regulated institutions would now also require FCA regulation, but would no longer need MLRs authorization.
Under the existing FSMA regime, crypto assets fall under FCA control if they serve as the underlying asset or property for regulated activities or financial instruments, like collective investment schemes. The reach of FSMA will be expanded to cover new activities such as operating a crypto asset exchange and custody. Crypto assets that are currently not subject to FCA oversight would be required to register with the FCA for MLRs supervision.
The paper highlights that there are differences in assessments made under MLRs and FSMA. These differences include the types of individuals who can have control and the thresholds for that control. The consultation paper raises the question of whether it is necessary to maintain two separate standards of control and suggests aligning MLRs requirements more closely with those of FSMA.
In light of these proposed changes, it is important to consider the potential implications for the regulation of crypto assets and the prevention of money laundering. The article poses the question of whether the use of crypto assets can be exploited by rogue states to evade economic sanctions, highlighting the need for effective regulation in the crypto industry.