UK regulator has enhanced supervisory model for crypto firms—report

The UKʼs Financial Conduct Authority (FCA) has adopted an “enhanced” supervisory model for the three largest crypto firms and for 12 other large crypto firms. The FCA takes a “more proactive” approach to these firms’ supervision despite crypto asset activity not being regulated yet in the UK, said HM Treasury’s anti-money laundering (AML) report, published today.

These firms are not FCA-registered but advertise legally in the UK. Since assessing their financial crime controls is a priority, the FCA has a named supervisor for each of these firms.

According to the report, the FCA has taken a stringent approach to checking cryptos’ AML systems and controls. In the 2023-24 reporting period, it conducted 83 assessments among the 44 crypto asset firms registered with it, including 12 targeted desk-based reviews, two full-scope onsite visits, and 69 full-scope desk-based reviews. These identified a range of Money Laundering Regulations (MLR)-related issues that led the firms to undertake remedial work.

The FCA has used powers in the MLRs on registered crypto asset firms 45 times since 2020 as part of its supervisory work in the sector, Compliance Corylated reported in January.

FCA conducts more checks

The report also shows the FCA has increased its supervisory activity for AML supervision. The most common deficiencies are ineffective business-wide risk assessments, insufficient customer risk assessments, inadequate enhanced due diligence, and compliance monitoring in need of improvement.

Government to announce AML/CFT supervision reform

The UK government will announce “as a priority” its reforms to AML and counter-terrorism finance (CTF) supervision, HM Treasury said on Thursday. Plans to reform AML/CTF supervision have been underway since 2022 and seek to reduce the number of supervisory bodies in the UK, which currently total 25.

FCA chief executive Nikhil Rathi wrote to the Treasury Committee last year to say the regulator prefers the single professional services supervisor (SPSS) option for reforms. This approach would reduce AML supervisory complexity by cutting the number of AML/CTF supervisors and addressing the sectors the Financial Action Task Force (FATF) considered weakest in its last review.

Emma Reynolds, economic secretary to the Treasury, said it would respond later this year to the 2024 consultation on potential improvements to the MLRs.

The Treasury has expanded the information in the AML report to includes new metrics on the guidance and training that supervisors provide for firms, and data on how they are targeting activity according to risk. “The information in this report will be important in helping to inform long-term decisions on structural reform to the UK supervisory system, as well as improvements to the MLRs,” Reynolds said.

The Labour government recently added anti-corruption work to its economic crime brief, and is taking a “follow the money” approach to people smuggling.