UK Government confirms it reviews law changes for virtual currency exchange platforms

Maria Nikolova

Amendments to the 4th Anti-Money Laundering Directive are set to bring virtual currency exchange platforms and custodian wallet providers into the scope of Anti-Money Laundering and Counter-Terrorist Financing regulation.

The UK Government has confirmed that it is considering law changes that will affect virtual currency exchange platforms.

Lord Bates said on Tuesday, November 21, 2017, that the Government is currently negotiating amendments to the 4th Anti-Money Laundering Directive set to bring virtual currency exchange platforms and custodian wallet providers into the scope of Anti-Money Laundering and Counter-Terrorist Financing regulation.

This will require such firms to conduct due diligence upon their customers, with their activities being overseen by national competent authorities for these areas, he added. The government supports the intention behind these amendments.

Lord Bates noted that the stance of individual firms towards providers of digital currencies is a commercial decision for those firms, and it would not be appropriate for the Government to intervene.

The statement comes after in September this year, the Financial Conduct Authority issued a consumer warning about the risks of Initial Coin Offerings (ICOs). And last week, the regulator issued a special warning about the risks associated with cryptocurrency CFDs.

The FCA noted that the value of cryptocurrencies, and therefore the value of CFDs linked to them, is extremely volatile. They are vulnerable to sharp changes in price due to unexpected events or changes in market sentiment. Other concerns are related to high leverage offered for trading such CFDs, as well as with price transparency (or its lack).

The FCA regulates CFDs which means that when investors trade cryptocurrency CFDs they have the protections offered by the UK’s financial services regulatory framework. This means that:

  • firms offering CFDs must be authorised and supervised by the FCA;
  • individual complaints can be referred to The Financial Ombudsman Service (FOS);
  • consumers have access to the Financial Services Compensation Scheme (FSCS).

However, these protections are limited. They will not be useful to compensate traders for any losses from trading. Also, cryptocurrency CFDs may be offered by firms which are established and authorised in the European Economic Area (EEA). If investors trade with a firm in another EEA jurisdiction, any individual complaints will need to be referred to the relevant authority in that jurisdiction.

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