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UK Government appoints FCA as economic crime enforcer

Cryptocurrency scam-related queries have been growing at a consistent rate since May 2018. In response, the UK’s Financial Conduct Authority has been named as an enforcer of the newly published Economic Crime Plan.

The UK’s Financial Conduct Authority (FCA) will be tasked with supervising the AML/CTF policy for the crypto asset markets. The digital asset sector in the UK is small in comparison to other industries within the greater financial sector. The crypto space is growing at a fast rate, however, and is responsible for at least one percent of the global daily trading volume of digital assets. There are 15 crypto asset spot exchanges headquartered in the UK, out of a global number of 231.

The annual report and accounts 2018/19

On July 9, 2019, the Financial Conduct Authority (FCA) published its Annual Report and Accounts 2018/19, which covers the last financial year culminating in March 2019. While the paper provides an in-depth look into the state of the financial sector in the United Kingdom, the financial regulator also provided commentary on the state of the crypto asset industry.

The regulator reiterated its belief that digital assets do not possess any inherent value. “Crypto assets have no intrinsic value. Evidence suggests that consumers may buy and trade crypto assets without realizing they have limited regulatory protections,” the regulator stated.

Additionally, the FCA recapitulated the findings of its May 2019 report, released in conjunction with Action Fraud, which found that crypto-related scams are on the rise. The FCA found a connection between marketing strategies and the proliferation of scams, saying, “Advertising, which is often targeted at retail investors, is often not fair or clear, and can be misleading. The design of some of these products can also support financial crime and a lack of transparency and oversight can harm market integrity.”

In the same vein, data from the FCA Contact Centre confirmed these sentiments. The number of inquiries related to digital assets have been consistently on the rise since May 2018. Unfortunately, the majority of these queries are related to scams.

On the positive side, the FCA has seen an increase in legitimate companies looking to participate in the different avenues provided by the FCA that are designed to test new technologies in a safe manner.

The FCA’s Regulatory Sandbox and its Direct Support function are part of a program called Innovate Support. The report states that the companies looking for inclusion in these programs are “firms using crypto assets to facilitate cross border money remittance and those focusing on (the) issuance of tokenized debt and equity. Many of the crypto asset-related business models we see seem to be becoming increasingly complex.”

Lastly, the report found that the majority of those who purchased digital assets did not adequately research the products before the purchase.

The FCA is considering a ban on the “selling, distributing and marketing to retail consumers derivative products that reference certain types of crypto assets.” The FCA will reveal its stance on this matter at a later date.

The Economic Crime Plan

On July 12, 2019, UK Chancellor Philip Hammond and the Home Secretary Sajid Javid, among others, published a strategy for the financial sector called the Economic Crime Plan. The document is designed to address the problem of money laundering within the European country.

The Economic Crime Plan is supported and undersigned by a wide array of parties within the UK. Law enforcement, financial institutions, legal accountants, and property organizations have pledged to support the new plan through information sharing, technological innovation, and resource pooling.

While economic crime is aided by different areas of industry, the government believes that digital assets play a significant role within the UK as well as globally. As a result, the government is asking the FCA to establish a new policy geared towards adequately and effectively supervising and enforcing the Anti Money Laundering (AML) and Counter-Terrorism Financing (CTF) requirements within the digital asset sector.

The Chancellor of the Exchequer, Philip Hammond, touched on the far-reaching effects of economic crime stating, “This crime fuels everything from drug dealing to modern slavery, fundamentally undermining people’s faith in our financial system and impacting economic growth.”

Therefore, the UK is aiming to go beyond the globally accepted standard with regard to digital assets related money laundering.

The Financial Action Task Force published a set of anti-money laundering guidelines earlier this year designed for use by governments as helpful tips for enacting effective legislation for the cryptocurrency industry. The document is expected to be a defining authority on the risks posed by digital assets with regard to economic crime and illegal activity. The UK government will take the recommendations set forth by the FATF in its document and bring all businesses within the digital asset sector under the purview of AML/CTF regulation by January 2020.

The January 2020 goal will surpass international objectives. However, the UK believes the FCA-led digital asset policy will help other governments provide a standard and comprehensive response to any and all relevant crime as it pertains to the digital asset sector. To facilitate these changes, the government may widen the FCA’s supervisory toolkit as well as its legal jurisdiction.

The Home Secretary, Sajid Javid, expressed support for the plan saying: “Our new plan represents a step-change in our response, bringing together the public and private sectors to relentlessly pursue the perpetrators and their dirty money.”


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