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

UK's FCA Advises Banks on "Good Practice" for Crypto Financial Crime Risks

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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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