red 
On Monday, UK Cryptoassets Taskforce announced her final report setting out a vision for the UK to become a leading innovator in cryptoassets and distributed ledger technology (DLT).
Elliptic was proud to participate in private sector discussions with the Cryptocurrency Task Force earlier this year. And given our focus on providing leads solutions to help the crypto-asset industry fight financial crime, we particularly welcome the statement in the report that the UK government aims to develop “one of the most comprehensive responses globally to the use of crypto-assets for illicit activities”.
This is a clear sign that UK regulators are serious about regulating the crypto-asset industry. The report outlines the specific steps they will take to do this:
- The UK will move quickly to implement Fifth EU Anti-Money Laundering Directive (5AMLD)
by extending AML regulation to crypto-fiat exchange platforms and custodial wallet providers.
- The UK will expand the scope of AML obligations to cover cryptoasset platforms and services beyond those required by 5AMLD. UK regulators will launch a consultation in early 2019 to determine whether crypto-to-crypto exchange services, crypto-asset ATMs, peer-to-peer platforms (P2P) and other innovative business models should be covered by anti-money laundering requirements.
- UK regulators will also consult on extending AML requirements to cryptoasset platforms that are based overseas but offer services to UK clients. This is a similar approach to that already taken by the US, which has managed to take important steps execution actions against non-compliant exchanges located outside the US but offering online services to individuals in the US.
- The UK will push for a co-ordinated international response to crypto-asset regulation through its participation in organizations such as the G20, the Financial Action Task Force (FATF) and others.
These are ambitious plans.
Just last week, FATFglobal standard setter for anti-money laundering regulation, invited on countries to take immediate steps to regulate cryptoassets. The Cryptoassets Taskforce report shows that the UK is positioning itself to be at the forefront of these global efforts. But that means the crypto-asset industry also has to do its part.
Preparation for regulatory oversight
Exchanges, wallet providers and other platforms must ensure that they proactively meet compliance requirements and work to combat the risk of financial crime.
Crypto asset platforms can expect that UK regulators will not tolerate lax AML controls or compliance failures. Those who do not take the appropriate steps and are not prepared for the new requirements could find themselves subject to fines or other enforcement measures. It is essential that cryptoasset service providers located in the UK, or offering services to UK clients, start planning now for the regulatory developments planned for 2019.
To prepare for more intense regulatory scrutiny ahead of time, compliance officers in the cryptoasset industry should ask themselves some important questions:
- Do you understand illicit financing? risks your business persons? What types of money laundering and terrorist financing are you exposed to and how can you prevent them?
- Do you have plans to make sure you can meet the challenges related to them avoiding sanctions, cyber crime and other illegal activities?
- Do you have compliance or forensic tools necessary to monitor and investigate illegal activity in cryptoassets?
- Does your compliance staff need training on monitoring crypto-asset activity and conducting investigations?
It’s not just crypto-asset platforms that should take these steps. Banks and other financial institutions should work to understand their exposure to cryptoassets.
According to the report of the Working Group, earlier this year the Directorate for Financial Conduct advised banks on the steps to take to assess and mitigate the risks associated with cryptoassets. With a heightened regulatory stance looming, banks should expect regulators to demand evidence that they are effectively managing crypto-asset risks.
The measures outlined in the Cryptoasset Taskforce report will help the UK provide an innovation-friendly environment for cryptocurrencies, initial coin offerings (ICO) and other exciting crypto-asset products and services.
But with regulators raising prices, complacency is not an option.
Contact us to understand how Elliptic can help your business meet these challenges and navigate this rapidly changing regulatory environment.
Compliance Financial Services EMEA
