Category Archives: UK Cryptocurrency

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UK’s FCA Advises Banks on “Good Practice” for Crypto Financial Crime Risks

In a letter addressed to the CEOs of domestic banks, the United Kingdom’s Financial Conduct Authority (FCA) has made recommendations for financial institutions to ramp up “good practice” approaches in regards to their clients who offer crypto-related services.

Protection and prevention

The letter begins by highlighting that evidence of cryptocurrencies being utilized for criminal activities is growing. Despite there being plenty of non-criminal motives for the usage of digital currencies, the anonymous and international scale of the technology means that it is open to abuse.

More specifically, the FCA asks financial institution CEOs to “enhance your scrutiny” of clients who “derive significant business activities or revenues from crypto-related activities”. This regards services or products provided by clients that may include: operating cryptocurrency exchanges, trading cryptocurrencies or even “where your firm wishes to arrange, advise on, or take part in an ‘initial coin offering’” (ICO).

The letter suggests that “reasonable and proportionate” measures are taken to reduce the risk of the addressees’ firms facilitating financial crimes. It advises the staff to be thoroughly educated in cryptoassets to make it easier for them to identify high-risk clients or activities.

Additionally, the UK financial watchdog asks firms are to ensure that “existing financial crime frameworks adequately reflect the crypto-related activities which the firm is involved in”, as well as being able to keep up with the rapid developments from the nascent industry.

The FCA is also encouraging several other measures such as engaging clients and understanding the nature and risks of their business, thorough checks of “key individuals” in the client business, and assessing the adequacy of clients who offer crypto-exchange services. For those involved in ICOs, the FCA advises that these clients have their investor-base, token functionality and jurisdictions considered.

These are positive notes coming from the FCA considering that its letter goes on to make it clear that not all crypto-related clients should be treated with a blanket of scrutiny. However, appropriate measures should always be taken to reduce risk.

Notably, an example of “high-risk”, according to the FCA, would be one where a client is utilizing a state-sponsored crypto asset, which it says are designed to evade international financial sanctions.

For example, the Venezuelan state-backed cryptocurrency Petro token which could overcome “severe economic issues”, although it has been embroiled in controversy with allegations of falsified ICO records. This has caused US president Donald Trump to enact an executive order that bans all US residents from using Petro tokens.

At the end of the letter, the FCA highlights the risks posed to retails customers who contribute larger sums to ICOs, indicating that they may be at a higher risk of investment fraud.

Bitcoin News has reported on several occasions that the United Kingdom and the FCA have been a relatively positive force in the progression of cryptocurrency- and blockchain-related investigations and regulations. The ‘Dear CEO’ letter is another step forward; it makes efforts to ensure that financial institutions are aware of and prepared for the future without stifling the technology.


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UK FCA Probes 24 Crypto Businesses in ‘4th Most Crypto-Friendly Nation’

The Financial Times reported that the UK’s Financial Conduct Authority (FCA) has launched an inquiry into 24 “unauthorized” businesses that are involved with cryptocurrencies; additionally, they are investigating several related whistleblower reports.

Through a freedom of information request made by accountancy and consulting firm, Moore Stevens, the FCA has revealed that it is attempting to determine whether the businesses in question may be “carrying on regulated activities that require FCA authorisation”. While these aren’t formal investigations, the FCA could begin them should it discover or determine that there is a reason to.

So far in 2018, seven whistleblower reports relating to cryptocurrency have been made with no public outcomes yet. The statement mentions that there were no similar reports made between 2014 and 2017.

The United Kingdom was ranked fourth out of 48 other “crypto-friendly” nations, according to a study made by Blockshow Europe in which the UK had been praised for its “importance as a European hub for cryptocurrencies”.

The FCA does not regulate cryptocurrency exchanges, brokers or businesses, which gives them a grey area status and some freedoms. However, it has been pushed by the British Cryptocurrency Trade Association, the UK’s first self-regulatory blockchain industry trade body, to begin regulating the industry.

A brief timeline of events

In April, the FCA Business Plan 2018/19 was released with cryptocurrencies and blockchain technology receiving a fair amount of attention in the report. It did not come as a surprise considering that the UK is home to significant projects such as and Parity; furthermore, the self-regulatory cryptocurrency organization CryptoUK had plans to work with the UK government to assist British blockchain startups, making sure they were in compliance with AML and KYC regulations.

From this, the FCA, Bank of England and UK Treasury will be working together to publish a discussion paper which is due to be released in 2019.

Bitcoin News reported in early May that CryptoUK had also approached UK members of parliament seeking to create the appropriate frameworks for the industry to thrive in, as well as “reducing consumer risk and improving industry standards”, according to chair of CryptoUK, Iqbal Gandham.

Crypto-maturity in the UK

The FCA will “continue to monitor the appropriateness of the existing regulatory framework”, which should prove comforting to British banks who have been very wary of dealing with cryptocurrencies or businesses involved with them. This stems from the difficulties with running anti-money laundering checks on their transactions, which is something the European Union is firmly addressing.

Efforts made by the British financial watchdog and its collaborations with government branches indicate that the United Kingdom is to become a significant player in the global movement to create industry regulation frameworks and business innovations.


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UK Financial Conduct Authority to Deliver Crypto Regulation Analysis in 2019

The United Kingdom’s cryptocurrency regulation is slowly taking shape as its Financial Conduct Authority (FCA) has announced that they will be analyzing the risks and benefits of blockchain technology and cryptocurrencies.

Regulation in the UK

The FCA, Bank of England and the UK Treasury are working together on a discussion paper for cryptocurrencies which will be revealed in 2019. The coming UK crypto regulations are geared toward attracting businesses based in Continental Europe.

The FCA Business Plan 2018/19 states:

“Cryptocurrencies has been an area of increasing interest for markets and regulators globally. In the UK, the Treasury Committee has announced that it will be launching an enquiry, to which we intend to respond.”

The plan continues:

“Cryptocurrencies themselves (i.e. those designed primarily as a means of payment/exchange) are not currently within our regulatory perimeter. However, some models of use or packaging cryptocurrencies bring them within our perimeter, making the landscape complex.”

Regulation around the world

The FCA has previously warned consumers regarding the risks of initial coin offerings (ICOs). The popular crowdfunding method for blockchain startups has been part of a miasma of controversies causing ICO bans in countries like China, which is still having issues with ICO and cryptocurrency projects getting past the Peoples Bank of China’s (PBoC) strict rulings.

There are very few countries around the world that have outright bans on ICOs, and many of the governments within their respective countries are taking a look at the possibility of future regulations.

Most countries have banned ICOs due to fraudulent actors, scams, security risks and money laundering; however, several are attempting to create definitions and legal frameworks that can accommodate the technology and utilize the long list of benefits that come with it.

Protecting consumers and the technology

In February, the UK Treasury Committee launched an inquiry into cryptocurrencies and distributed ledger technology, stating that one of its goals is to provide protection to consumers and businesses without stifling innovation. MP Nicky Morgan, committee chairman, said:

“People are becoming increasingly aware of cryptocurrencies such as Bitcoin, but they may not be aware that they are currently unregulated in the UK, and that there is no protection for individual investors… We will also examine the potential benefits of cryptocurrencies and the technology underpinning them, how they can create innovative opportunities, and to what extent they could disrupt the economy and replace traditional means of payment.”

The FCA also released a statement in response to the UK’s growing number of cryptocurrency and blockchain firms describing that cryptocurrency derivatives could be classed as financial instruments, meaning that tokens issued through ICOs could require FCA authorization.

While the FCA doesn’t quite have a clear idea on how to manage or regulate cryptocurrencies and ICOs, it is evident that the regulator intends to embrace distributed ledger technology and, in doing so, enable blockchain-related businesses and innovations to thrive in the UK.


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