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FCA Crypto Investigations: A Reminder of Compliance Needed

Author: Syedur Rahman  14 March 2022

The Financial Conduct Authority (FCA) has stated that it began 300 probes into unauthorised cryptocurrency firms over a six-month period in 2021.

The financial watchdog said that the majority of the cases related to scams, with reports to it of fraud involving digital assets increasing by 50%. The FCA now has 50 investigations ongoing into unauthorised businesses in the UK.

A total of 4,300 possible cryptocurrency frauds were reported to the FCA’s ScamSmart website in the six months up to September last year. The figure is more than double the total for the next most commonly-reported problem, which was the 1,600 reports regarding pension transfers.

Sarah Pritchard, the FCA’s executive director of markets, said the figures showed just how common such frauds are. While the FCA has a list of more than 200 firms that, it says, appear to be active involving cryptoassets without being FCA-registered, the scale of such unauthorised activity is believed to be much greater. Improved efforts to tackle wrongdoing in the digital assets sector have been called for by various politicians and commentators, at a time when many UK retail investors are starting to become involved in cryptocurrency.

In our experience, the FCA usually contacts crypto firms to ask about the activities that are being carried out in the UK. Its queries tend to relate to the total amount of customer assets (fiat and crypto) held by a firm, and whether the company is adhering to the Money Laundering Regulations and taking into account all relevant and appropriate regulations and law; including (but not limited to) the Proceeds of Crime Act 2002.

It is absolutely imperative that companies with involvement in cryptocurrency devise and follow a compliance-based model, to ensure their activities do not fall foul of the FCA. Any failure to do this can result in the FCA threatening to issue proceedings and requesting that the firm ceases trading.

There is little doubt that the FCA will scrutinise a company if it believes it to be necessary. It may ask how a company communicates with customers; in particular, how it deals with those customers who request the return of their cryptocurrency.

To avoid problems later, firms have to give serious consideration to how they can:

  • Prepare a risk-based approach to prevent unwanted customer transactions.
  • Introduce alerts to minimise the time between a suspicious incident and its investigation.
  • Reduce the potential for illegal activity.

Any failure to achieve these objectives will increase the chances of both scrutiny and punishment from the FCA.

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Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.

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