UK regulator plans to extend financial crime reporting obligation to cryptoasset exchange providers

Maria Nikolova

The FCA believes that the obligation has to apply to a wider range of firms, including ones that potentially pose higher money laundering risk.

The UK Financial Conduct Authority (FCA) today published a consultation paper on extending the annual financial crime reporting obligation.

In July 2016, the FCA introduced an annual financial crime reporting obligation for certain firms. This gives the regulator information on a range of indicators that reflect the potential money laundering (ML) risk of the firm, based on its regulated activities and the nature of its customers.

The obligation to provide financial crime information is set out in the FCA’s Handbook SUP 16.23 Annual Financial Crime Report (REP-CRIM).

Approximately 2,500 out of the approximate 23,000 firms the FCA supervises under The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) submit REP-CRIM information.

Now, the FCA proposes to extend the scope of firms required to provide the regulator with REP-CRIM information to include firms that carry on regulated activities that the FCA considers potentially pose higher money laundering risk. This extension will be irrespective of a firm’s revenue threshold.

Under this proposal, the following additional firms would need to provide the FCA with REP-CRIM information irrespective of their total annual revenue:

  • all FSMA authorised firms within the scope of the MLRs and:

– that hold client money or assets, or

– that carry on an activity that we consider poses higher ML risk

  • all payments institutions except for payment institutions that only carry out at least one of the following payment services:

– Money remittance only – that are supervised by HMRC for anti-money laundering (AML) purposes.

– Account information services and/or payment initiation services. These firms do not receive or hold clients’ money and do not carry out payment transactions, and so potentially pose a low ML risk.

– EEA-authorised payment institutions which are permitted to provide a payment service in the UK only under the freedom to provide services.

  • All electronic money institutions.
  • All Multilateral Trading Facilities (MTFs).
  • All Organised Trading Facilities (OTFs). OTFs are a type of firm introduced by MiFID II, therefore bringing them within the scope of the MLRs and the REP-CRIM obligation.
  • All cryptoasset exchange providers and custodian wallet providers. These firms are new categories of firms within the scope of the REP-CRIM obligation

Comments are invited until 23 November 2020. The FCA will consider the feedback and plan to publish a Policy Statement (PS), including any final rules, by the first quarter of 2021.

As FinanceFeeds has reported, the FCA became the anti-money laundering and counter terrorist financing (AML/CTF) supervisor for businesses engaging in certain cryptoasset activities under the amended Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (MLRs) in January 2020. Any UK business conducting specific cryptoasset activities falls within scope of the regulations and will need to comply with their requirements.

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