FCA Suggests Greater Focus on AML and KYC for Banks Dealing with Crypto-assets

Risks Associated with Cryptoassets

In its “Dear CEO” letter of 11 June 2018, the UK’s Financial Conduct Authority (FCA) reminded UK firms offering banking services about the risks associated with crypto-assets such as bitcoin. This included a caution on the risk of crypto-assets being used for financial crime.

Although the FCA recognised that there are many non-criminal motives for possessing crypto-assets, such as high-risk speculative investment and a means of funding innovative technological development, emphasis was placed on CEOs exercising due diligence with regard to the associated risks.

These risks include money laundering and terrorist financing, as many crypto-assets allow for anonymous or pseudonymous international transactions. And because of these same traits, the evidence trail for crypto-assets may be weaker.

Greater Focus on AML and KYC

Firms trading, handling or storing crypto-assets, or engaging in an Initial Coin Offering (ICO) by arranging, advising or partaking in it, must have greater focus on anti-money laundering (AML) and appropriate know-your-client (KYC) standards. This may require an enhanced scrutiny of clients and their activities in this space.

In general, the FCA noted that firms should take “reasonable and proportionate measures” when tackling the issues at hand, and from a risk-based approach suggested the following initiatives to address the risks associated with crypto-assets:

  • educating staff on cryptoassets and their associated risks through continued education;
  • ensuring that the firm’s existing AML and KYC frameworks sufficiently addresses the risks associated with crypto-assets; and
  • conducting due diligence on a client’s business, including key personnel.

The FCA further stressed that existing criteria for sources of wealth or funds should be applied in assessing the risks posed by a customer whose wealth or funds derive from crypto-asset or crypto-asset-related trade.

Should you be in doubt of whether your organisation’s AML and KYC standards efficiently address the risks associated with crypto-assets, we recommend a professional legal opinion. Our specialists are available for an informal talk about your organisation’s situation.

Contact us:

John Nimmo – Founding Partner, Edinburgh (email)

Joan Hon – Partner, New York (email)

Edward Sloan – Partner, London (email)

Sean Hogle – Partner, San Francisco (email)

Jin Enyi – FinTech Legal Advisor, London (email)

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