RegTech Intelligence

UK moves to close crypto registration loophole; gives industry notice on AML travel rule

Rachel Wolcott, Regulatory Intelligence

The UK Treasury has moved to close a loophole in the Money Laundering Regulations (MLR 2017) that potentially allowed crypto asset firms to bypass the UK’s registration gateway, according to a government document published on June 15.

Previously firms could notify the Financial Conduct Authority (FCA) after a change of ownership occurred. Now crypto asset firms registered with the FCA for MLR 2017 purposes must notify the regulator before an acquisition concludes. The FCA will then assess whether the new owner is fit and proper and take a decision on whether to suspend or cancel registration.

Firms could bypass the MLR registration gateway by acquiring already registered crypto asset firms, potentially enabling the acquiring firm to undertake illicit activities during the 90-day gap before the FCA could take action, HM Treasury’s response to the consultation on amendments to the MLRs 2017 statutory instrument (SI) said.

This change was made through secondary draft legislation the Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022. It and many other measures will come into force on September 1, subject to parliamentary approval.

Follows FCA warnings on Bitpanda, Binance

The FCA previously notified the Austrian crypto asset company Bitpanda it could cancel the MLR registration of Trustology, a UK business it bought in February. At that point Trustology had been FCA registered for only four months.

In March, the FCA publicised concerns Binance Group, a firm it has rejected for MLR registration and stopped from doing business in the UK, could now be the beneficial owner of UK-registered and based Digivault Limited after a transaction announced with its parent company Singapore-based Eqonex. The FCA reserved the right to suspend or cancel Digivault’s registration.

Travel rule for cryptos

The UK will also apply, through the same MLR amendment SI, the so-called travel rule to crypto businesses, albeit with a year’s implementation period, HM Treasury’s consultation response said.

The Financial Action Taskforce (FATF) recommendation 16 requires countries ensure that financial institutions send and record information on the originator and beneficiary of a wire transfer, and that this information remains with the transfer or related message throughout the payment chain. FATF has long recommended that this travel rule should apply to crypto assets.

The UK will now apply the rule to crypto assets with a 12-month grace period running from the point at which the amendments to the MLRs take effect until September 1, 2023, subject to parliamentary approval, during which crypto asset businesses will be expected to implement solutions to enable travel rule compliance.

This article was published by Thomson Reuters Accelus Regulatory Intelligence on 16 June

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