Crypto firms warned of an ‘uphill battle’ after FCA’s incoming chair accuses sector of facilitating money laundering

The FCA’s incoming chairman believes crypto is ‘risky’, ‘evasive’ and ‘a method by which money laundering happens at size’, meaning crypto firms face an uphill battle if they hope to build their businesses in the UK.

Ashely Alder, who will become FCA chair in February told MPs in a treasury select committee meeting this week that crypto platforms are “deliberately evasive”, facilitate money laundering at scale and create “massively untoward risk”, suggesting that crypto firms hoping to build up their businesses in the UK will struggle to meet FCA requirements when they assume regulatory responsibility for the sector. According to Electronic Verification Uncovered II, a report by digital compliance and anti-money laundering experts SmartSearch, 85% of crypto firms don't meet the minimum FCA standards as it is.

Alders’ comments come just weeks after the collapse of FTX - the world's second largest exchange – a scandal that highlighted the risks that come with crypto transactions and the need for tighter controls and regulatory oversight within the sector.

When asked about his views on crypto, Alder, who is currently chief executive of Hong Kong’s Securities & Futures Commission told MPs: “I do not own any and they should be regulated further. The point is this: when it comes to crypto assets, as distinct from the underlying blockchain, our experience to date of platforms—whether FTX or others—is that they are deliberately evasive. They are a method by which money laundering happens at size.”

He then added that the way crypto firms “bundle a whole set of activities which are normally segregated in conventional finance gives rise to massively untoward risk” like potential conflicts of interest and assets not being properly segregated.

Traditionally, the FCA has taken a fairly tough approach with regards to its limited crypto remit – it has rejected 80 per cent of crypto firms that applied to join its register of businesses, despite passing its anti-money laundering checks.

And now the government is finalising plans to give the FCA broader powers, including limiting foreign crypto companies selling into the UK, provisions for how to deal with the collapse of companies and restrictions on the advertising of crypto products, suggesting life may become even tougher for crypto firms looking to transact in the UK.

As well as being a stark condemnation of the sector, Alder’s comments also seem to be at odds with the Government’s plans to make the UK a crypto hub.

Back in April, when he was Chancellor of the Exchequer, Rishi Sunak announced plans to recognise stablecoins as a valid form of payment as part of wider plans to make Britain a global hub for crypto asset technology and investment.

Martin Cheek, managing director at multi-award-winning Anti Money Laundering (AML) platform SmartSearch said: “On the one hand, we have a regulatory body that has huge reservations about crypto, and on the other, a Government that wants to encourage crypto investment in the UK. And while these two viewpoints seem at odds with one another, they have one thing in common – regulation.

“Crypto firms in the UK are going to have to ensure their compliance procedures are watertight if they are going to be able to transact in the UK. Alder wants more regulation as he sees crypto as deliberately evasive, while the Government knows it needs to regulate the sector to allow it to become legitimised in the UK financial system if it is to create an environment in which crypto firms can legitimately innovate.

“At SmartSearch, we offer specialist digital compliance services to crypto firms that need to ensure they are meeting their obligations. Our platform is constantly updated to guarantee compliance with the latest requirements.”

To find out more about SmartSearch’s AML solutions for the crypto sector, visit https://www.smartsearch.com/sectors/cryptocurrency