To enhance supervision, combat financial crime, and streamline regulatory processes, the United Kingdom Treasury has unveiled a consultation paper outlining significant changes to money laundering regulations, particularly concerning regulating crypto assets.
The proposed amendments, stemming from a review of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs), aim to usher in a new era of “smarter regulation.” This entails minimizing regulatory burdens, ensuring regulations remain relevant in evolving technologies, and fostering a landscape of responsive and accountable regulators.
Integration of FCA regulation for crypto firms
One of the central proposals is to integrate the Financial Conduct Authority (FCA) regulation for crypto asset service providers currently subject to MLR supervision. Under the current framework, many crypto firms operate outside FCA oversight and are solely regulated under MLRs. The new proposal suggests that these firms would now require FCA regulation in addition to, but no longer solely reliant on, MLR authorization.
The Financial Services and Markets Act 2000 (FSMA) scope is set to expand to include various crypto-related activities such as operating exchanges and custody services. Previously, FSMA only covered crypto assets involved in regulated activities or financial instruments. With the proposed changes, crypto assets not under FCA oversight will need to register with the FCA for MLR supervision, effectively broadening the regulatory net.
A key point of discussion in the consultation paper revolves around aligning control standards between MLRs and FSMA. Currently, assessments under these regimes differ significantly, particularly concerning the types of individuals who can exercise control and the associated thresholds. The paper raises the question of whether maintaining separate standards of control is necessary, suggesting closer alignment of MLR requirements with those of FSMA.
Implications for the crypto industry
If implemented, these proposed changes could have profound implications for the crypto industry in the UK. While aimed at enhancing regulatory effectiveness and reducing compliance burdens, the integration of FCA oversight and the extension of FSMA’s reach signifies a significant shift in how crypto firms are regulated. Firms must adapt to the new regulatory landscape, potentially necessitating adjustments to their operational and compliance frameworks.
The consultation paper released by the UK Treasury marks a significant step towards modernizing regulatory frameworks governing crypto assets. By embracing “smarter regulation,” the proposed changes seek to balance effective supervision and minimizing regulatory burdens. However, the potential impact on the crypto industry remains to be seen, with stakeholders eagerly awaiting further developments as the consultation process unfolds.
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