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The FCA’s Call for Action on Crypto-Based Money Laundering

Author: Syedur Rahman  9 May 2024
2 min read

Syed Rahman considers the Financial Conduct Authority’s appeal to cryptocurrency firms.

The Financial Conduct Authority (FCA) is urging greater use of technology in the battle against money launderers’ use of crypto.

The FCA’s Director of Payments and Digital Assets, Matthew Long, told a London conference that he wants crypto firms to be “using innovation’’ to tackle the problem.

He added: “I still see £24 billion of money laundering in crypto transactions, and that’s a low estimate.

“Let’s get a clean market first, and then let’s talk about things like using stablecoins for payments.’’

The Director was responding to a question about how the FCA can find a balance between encouraging innovation and creating rules that protect investors and ensure safer markets. 

His response came in the wake of some Conservative politicians’ claims that the FCA’s heavy-handed regulation is limiting what crypto firms can achieve in the UK. Economic Secretary to the Treasury, Bim Afolami, recently argued that the FCA risks undermining the entrepreneurial spirit that is behind much of the crypto sector.

This year has seen the FCA approve just four crypto registrants. The regulator has cited poor anti-money-laundering provisions as a reason why more applications to register with it have not been approved. The FCA has also taken a tough line on crypto ATMs, and its marketing regime has led to the likes of Binance and PayPal suspending operations in the country.

Despite such a track record, the FCA has consistently argued that it is a forward-looking regulator. It has referred to its Regulatory Sandbox, which enables firms to test new products live in the market with real consumers, and its new Digital Securities Sandbox, which allows institutional market participants to experiment with tokenising financial securities like stocks and bonds.

Task

It is no easy task to balance the need for technical innovation and growth in the crypto sector whilst also protecting consumers and preventing the facilitation of financial crimes. What is regrettable, however, is that the government and its regulators now seem to be at odds with each other. Promoting growth in this sector whilst simultaneously putting safeguarding measures in place that prevent types of financial crimes such as money laundering do not have to be mutually exclusive endeavours. 

Whilst the judiciary has, for some time now, shown its willingness to be flexible in seeking to protect consumers and uphold the rule of law in relation to crypto, it appears that the FCA’s endeavours to do so are now under criticism from the government. With one eye perhaps on a general election, the government is now taking a firm stance on promoting innovation and showcasing its aims to boost the economy. 

However, one cannot overlook the government’s - and it’s regulator’s - failings to date in not adequately implementing measures and legislation that could have curtailed the estimated £24 billion currently being laundered through crypto. 

The FCA and the government do appear in principle to be singing from the same hymn sheet, given there is legislation in the pipeline to regulate stablecoins. It remains any alignment will continue.

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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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