The UK Treasury has recently published a consultation paper proposing changes to money laundering regulations that would impact the regulation of cryptocurrencies 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 aim of these changes is to establish a more “smarter regulation”.
The consultation paper recognizes the importance of a robust supervisory regime to effectively implement the MLRs. It outlines several potential alterations to the supervision of crypto asset service providers. Currently, the Financial Conduct Authority (FCA) supervises some institutions under both the MLRs and the Financial Services and Markets Act 2000 (FSMA) regulations. However, most crypto firms are not under FCA supervision and are therefore subject to the MLRs. The consultation paper suggests that MLRs-regulated institutions should also be required to seek FCA regulation, but would no longer need MLRs authorization.
Currently, under the FSMA regime, crypto assets fall under FCA control if they serve as the underlying asset for regulated activities or financial instruments. The proposed changes would extend the scope of the FSMA to cover new activities such as operating a crypto asset exchange and custody. Crypto assets that are not currently subject to FCA oversight would need to register with the FCA for MLRs supervision.
There are differences in the assessments made under the MLRs and the FSMA. The consultation paper raises the question of whether it is necessary to maintain two separate standards of control. It suggests aligning the MLRs requirements more closely with those of the FSMA.
In conclusion, the UK Treasury’s consultation paper on changes to money laundering regulations seeks to implement a “smarter regulation” for crypto assets. The proposed changes aim to expand FCA regulation to MLRs-regulated institutions while eliminating the need for MLRs authorization. Additionally, the scope of the FSMA would be extended to cover new activities related to crypto assets. The paper suggests aligning MLRs requirements with those of the FSMA and seeks feedback on this matter.