The European Union’s 5th Anti-money-laundering directive (5AMLD) was designed for a new world where illicit activity has become more creative in both the fiat and the cryptocurrency realms. The guidance is designed to put a serious dent in how crypto can be transacted and calls for almost complete reporting on all digital currencies coming and going. The Financial Conduct Authority (FCA) in the U.K., which oversees financial regulations in the country, has now made its own regulatory framework even tighter, taking the 5AMLD to a new level.
The new guidelines were presented by Therese Chambers, the FCA’s Director of Retail and Regulatory Investigations, during a speech last week. They incorporate several facets that were suggested by the Financial Action Task Force (FATF), which are expected to ultimately be included in the 5AMLD, as well. Chambers explained that new money laundering regulations (MLR) go “beyond the 5MLD to include a broader set of activities, such as Initial Coin Offerings (ICOs), as recommended by FATF last year,” adding that the idea isn’t to regulate currencies themselves, but, rather, the entities that conduct monetary transactions.
This includes customer due diligence mandated on the entities, risk assessments and the monitoring of client activity. Chambers adds, “This model is common for AML regulation across the globe. While the exact implementation varies, most financial crime regulation requires that a financial institution knows their client, undertake risk assessments and monitor client activity. This requires an intermediary to undertake these checks and be responsible for implementing them. If something goes wrong we have a direct point of contact. Cryptoassets like Bitcoin are a peer-to-peer technology and the settlement goes through an anonymous network of computers. The absence of an intermediary to authenticate a transaction presents particular challenges when applying financial crime regulation, designed for a market with intermediaries, to areas of the cryptoasset economy.”
The FCA seems to have grasped the concept of how guidance provokes innovation. While countries, such as the US, are determined to stifle the crypto industry, the U.K. is more ready to embrace it, as long as there are proper checks and balances in place. Chambers explains, “[At] the FCA, we believe that the relationship between taking a tough stance on financial crime and enabling world-leading financial innovation to benefit consumers, is complementary. This is because it is hard to see how any financial innovation can achieve scale without tackling illicit use cases – if an innovation’s only use is to launder the proceeds of crime, then it’s difficult to see a pathway forward for mainstream adoption.”
To that end, the new framework covers crypto on-ramps and exchanges that offer pairings with fiat and crypto-crypto. It will also provide better guidance on custodial wallets, ICOs, crypto ATMs and initial exchange offerings.
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