The UK treasury has recently published a consultation paper outlining proposed changes to money laundering regulations that would impact the regulation of crypto assets. These changes are a result of a review of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) conducted in 2022. The aim of these changes is to achieve “smarter regulation,” as stated in the paper. The consultation paper highlights various ways in which the supervision of crypto asset service providers could be modified.
Currently, the Financial Conduct Authority (FCA) supervises certain institutions under both the MLRs and the Financial Services and Markets Act 2000 (FSMA). Institutions regulated under the FSMA are not required to obtain MLRs registration. However, most crypto firms are not supervised by the FCA and therefore must comply with the MLRs. The consultation paper suggests that institutions regulated under the MLRs would also need to be subject to FCA regulation, but would no longer be obligated to seek 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, such as in collective investment schemes. The scope of the FSMA will be expanded to include new activities like operating a crypto asset exchange and custody. Crypto assets that are not currently subject to FCA oversight will now be required to register with the FCA for MLRs supervision.
There are several differences in the assessments made under the MLRs and the FSMA. The paper notes that “the type of people who can have control and the thresholds for that control are different between the regimes.” The paper raises the question of whether it is necessary to maintain two separate standards of control and suggests aligning the MLRs requirements more closely with those of the FSMA.
In light of these proposed changes, it is important to consider the role of crypto assets in evading economic sanctions, especially when it comes to rogue states. The question arises of whether crypto assets are being used inappropriately in this context.
UK treasury aims to enhance anti-money laundering efforts by implementing crypto supervision reforms.