With the deadline drawing on crypto-related businesses in the UK to register with the watchdog, the potential complications and intricacies of the process are becoming more relevant. Let’s take a look at what it takes for the UK crypto-companies to be AML-compliant.
EU member countries had until January 10, 2020, to bring their domestic laws into full compliance with the 5th Money Laundering Directive (5MLD).
Before that date, each participant country introduced its own Act, given the need to fully comply with 5MLD by January 10, 2020. There are, however, countries that have not completed this process.
5MLD now covers UK crypto businesses and all crypto businesses must apply for registration with the FCA to remain legal in the UK.
The nuance here is that the FCA has its own guidance on how to comply with this directive. There is the directive, the law itself, and then there is FCA guidance. The FCA website says that in submitting your application you need to follow their guidance
and not only the 5MLD.
The registration application must include:
● Program of operations
● Business plan
● Marketing plan
● Structural organisation
● Systems and controls
● Individuals, beneficial owners and close links
● Governance arrangements and internal control mechanisms
● Anti-Money Laundering/Counter-Terrorist Finance framework and risk assessment
● Business-wide risk assessment
● All crypto-asset public keys/wallet addresses
The key point here is that on top of all the required documents, the business needs to demonstrate how it complies with all these requirements.
Since January we have been very careful to meet the requirements, submitted the registration application and already had numerous cycles of interview and data provision to the FCA as part of the process of the FCA reviewing the application.
Companies that do not have this kind of compliance, AML and regulatory framework as the basis are going to have a difficult time registering with the FCA by the deadline, in my opinion.
It is important to understand that the regulator needs more than just policy documents. They can (and most probably will) demand an audit to check on all the company’s and compliance officers’ internal processes, in order to verify the policies submitted
are actually followed day to day.
This additional expense and human capital requirement will undoubtedly make the competitive moat wider for the new players entering the industry. The flip side to increased regulation will be the need for larger initial capital requirements for the small
players and startups in the crypto industry. One of the disadvantages of highly protected industries is that over time a small number of large businesses may start to dominate the industry. This in turn may affect the pace of innovation and even degrade the
average cost of service for the users.
Regulation is however extremely important and necessary to first and foremost protect the interests of the citizens of a given jurisdiction, provide clarity on the best way of operating crypto businesses and provide a trustworthy and reliable customer experience.
It is all about finding a good balance between safety of the public and the pace of innovation.