In an open letter on June 11, 2018, the Financial Conduct Authority (FCA) has issued guidance to banks on “good practice” for handling the financial crime risks posed by “cryptoassets.”
A letter addressed to UK bank CEOs and published on the FCA’s website states that although there are many “non-criminal motives for using cryptoassets,” including speculative investment and funding innovative technological development, the product class can be “abused because it offers potential anonymity and the ability to move money between countries.”
The letter goes on to warn the UK bank executives:
“You should take reasonable and proportionate measures to lessen the risk of your firm facilitating financial crimes which are enabled by cryptoassets.”
The FCA warned that clients with “significant” cryptocurrency-related activities may require extra scrutiny. Special attention should be paid to where clients convert fiat and cryptocurrencies, where wealth is derived from, and whether a client is participating in or arranging an initial coin offering (ICO).
Appropriate steps, said the FCA, could include developing bank staff expertise, ensuring that financial crime frameworks reflect a client’s cryptocurrency-related activities, carrying out due diligence, and assessing a client’s own due diligence. For banking clients involved in ICOs, institutions should consider investors, organizers, jurisdictions, and the functions of tokens.
The FCA also advised banks to investigate sources of deposits and assess the risks posed by a customer whose “wealth or funds derive from the sale of cryptoassets, or other cryptoasset-related activities, using the same criteria that would be applied to other sources of wealth or funds.”
The letter points out that evidence of illicit activity may be weaker with cryptocurrency than with traditional assets, and that “does not justify applying a different evidential test on the source of wealth.” The agency expects “firms to exercise particular care in these cases.”
One particular high-risk indicator that executives are cautioned to watch out for is whether a customer is “using a state-sponsored cryptoasset which is designed to evade international financial sanctions.”
The FCA has been quite engaged in the cryptospace lately, having announced latst month that it will be conducting investigations into 24 crypto exchanges. In April, the FCA also clarified that while it doesn’t view cryptocurrencies as commodities or currencies, crypto derivatives might qualify as financial instruments.
Melanie Kramer is a freelance FinTech, blockchain, and cryptocurrency writer based between France and Canada. Melanie has studied, and retains an avid interest in, global politics, business, and economics.
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